In the context of consumer surplus and willingness to pay, which of the following statements is most likely to be true for a consumer purchasing a portfolio of 40 randomly selected stocks?

• A. Consumer surplus is always zero when purchasing multiple stocks.
• B. The consumer surplus is maximized when the total willingness to pay for the portfolio exceeds the market price paid.
• C. Consumer surplus is negative if the willingness to pay is greater than the price paid.
• D. Willingness to pay for each stock in the portfolio must be identical for consumer surplus to exist.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the concept of consumer surplus. Consumer surplus is the difference between the total willingness to pay (WTP) for a good or portfolio of goods and the actual market price paid. Mathematically, consumer surplus (CS) can be expressed as: \[CS = \text{Total Willingness to Pay} - \text{Market Price Paid}\]
2. Step 2: Recognize that when purchasing multiple items, such as a portfolio of 40 stocks, the total willingness to pay is the sum of the individual willingness to pay values for each stock. This means: \[\text{Total WTP} = \sum_{i=1}^{40} WTP_i\]
3. Step 3: Analyze the condition for consumer surplus to be maximized. Consumer surplus is maximized when the total willingness to pay exceeds the market price paid for the entire portfolio. This means the consumer values the portfolio more than what they actually pay, resulting in a positive surplus.
4. Step 4: Evaluate the incorrect statements: - Consumer surplus is not always zero when purchasing multiple stocks; it depends on the relationship between total WTP and price. - Consumer surplus cannot be negative if willingness to pay is greater than price; it would be positive in that case. - Willingness to pay for each stock does not need to be identical for consumer surplus to exist; it is the aggregate that matters.
5. Step 5: Conclude that the correct understanding is that consumer surplus is maximized when the total willingness to pay for the portfolio exceeds the market price paid, reflecting the consumer's net benefit from the purchase.