Why might a consumer choose to pay cash when purchasing a good or service?

• A. To decrease their willingness to pay for the good
• B. To avoid paying interest or transaction fees associated with credit cards
• C. Because paying cash always increases consumer surplus
• D. Because cash payments are required by law for all transactions

Answer: (B)

Verified step by step guidance

1. Understand the concept of payment methods and their impact on consumer costs. Consumers can pay using cash, credit cards, or other methods, each potentially involving different costs or fees.
2. Recognize that paying with credit cards often involves additional costs such as interest charges if the balance is not paid in full, or transaction fees imposed by merchants or card issuers.
3. Consider that paying with cash avoids these extra costs because cash payments do not incur interest or transaction fees, making it a cost-saving choice for consumers.
4. Analyze the effect on consumer surplus: paying cash does not inherently increase consumer surplus; consumer surplus depends on the difference between willingness to pay and actual price, not the payment method itself.
5. Conclude that the main reason a consumer might choose to pay cash is to avoid the extra costs associated with credit cards, such as interest or transaction fees, rather than to decrease willingness to pay or because of legal requirements.