Which of the following best describes a result of the ad revenue companies collect from advertisers in relation to consumer surplus and willingness to pay?

• A. Companies are able to charge consumers a higher price than their willingness to pay, reducing consumer surplus.
• B. Ad revenue leads to a decrease in the total market demand for goods and services.
• C. Consumers may receive goods or services at a price lower than their willingness to pay, increasing consumer surplus.
• D. Advertisers directly pay consumers, increasing their willingness to pay for products.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the concept of consumer surplus, which is the difference between what consumers are willing to pay for a good or service and what they actually pay.
2. Step 2: Recognize that advertising revenue allows companies to subsidize the price of goods or services, often enabling them to charge consumers less than their maximum willingness to pay.
3. Step 3: Analyze how this subsidy from ad revenue effectively lowers the price paid by consumers, thereby increasing consumer surplus because consumers pay less than their willingness to pay.
4. Step 4: Consider that advertising does not directly increase consumers' willingness to pay, nor does it typically cause companies to charge prices above willingness to pay, which would reduce consumer surplus.
5. Step 5: Conclude that the best description is that ad revenue enables consumers to receive goods or services at a price lower than their willingness to pay, thus increasing consumer surplus.