Multiple Choice
A firm will purchase a resource if:
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5. Consumer and Producer Surplus; Price Ceilings and Floors
Consumer Surplus and Willingness to Pay
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In microeconomics, the highest price that customers are willing to pay for a good or service is called the:
A
market price
B
consumer surplus
C
equilibrium price
D
willingness to pay
Verified step by step guidance1
Understand the concept of 'willingness to pay' (WTP): it represents the maximum price a consumer is ready to pay for a good or service, reflecting the value they place on it.
Distinguish 'willingness to pay' from other terms: 'market price' is the actual price at which goods are sold; 'consumer surplus' is the difference between WTP and the market price; 'equilibrium price' is where supply equals demand.
Recognize that the highest price a customer is willing to pay is exactly the definition of 'willingness to pay', not the other options.
Recall that consumer surplus arises when the market price is lower than the willingness to pay, creating extra benefit for the consumer.
Summarize that 'willingness to pay' is a fundamental concept in microeconomics used to measure consumer preferences and demand.
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