Which of the following examples best illustrates economic value created in terms of consumer surplus and willingness to pay?

• A. A consumer pays \$40 for a product they value at \$30.
• B. A consumer pays \$20 for a product they value at \$30.
• C. A consumer pays \$30 for a product they value at \$30.
• D. A consumer decides not to buy a product priced at \$20, which they value at \$15.

Answer: (B)

Verified step by step guidance

1. Understand the concept of consumer surplus: it is the difference between what a consumer is willing to pay for a product (their valuation) and what they actually pay. Mathematically, consumer surplus = willingness to pay - price paid.
2. Analyze each option by calculating the consumer surplus: for each scenario, subtract the price paid from the consumer's valuation of the product.
3. Check if the consumer surplus is positive, zero, or negative: a positive consumer surplus indicates economic value created for the consumer, zero means no surplus, and negative means the consumer pays more than their valuation (which usually means no purchase).
4. Evaluate each example: - For the first option, consumer surplus = \$30 - \$40 (negative, no surplus). - For the second option, consumer surplus = \$30 - \$20 (positive surplus). - For the third option, consumer surplus = \$30 - \$30 (zero surplus). - For the fourth option, the consumer does not buy because price > valuation, so no surplus.
5. Conclude that the example with a positive consumer surplus (willingness to pay greater than price) best illustrates economic value created in terms of consumer surplus.