Which of the following best describes the concept of 'keeping up with the Joneses' in microeconomics?

• A. A consumer's willingness to pay for a good based solely on its utility.
• B. The surplus a consumer receives when the market price is below their maximum willingness to pay.
• C. The effect of a price change on the quantity demanded due to substitution between goods.
• D. A consumer's desire to match the consumption patterns of their peers or neighbors.

Answer: (D)

Verified step by step guidance

1. Understand that 'keeping up with the Joneses' refers to a consumer behavior concept where individuals derive utility not only from their own consumption but also relative to the consumption of others around them.
2. Recognize that this concept highlights the importance of social comparisons in consumer choices, meaning that a consumer's satisfaction depends on how their consumption compares to that of their peers or neighbors.
3. Note that this behavior can lead to consumption externalities, where one person's consumption affects another's utility, which is different from traditional models focusing solely on individual utility from goods.
4. Distinguish this from other microeconomic concepts such as willingness to pay based solely on utility, consumer surplus, or substitution effects, which do not capture the social comparison aspect.
5. Conclude that the best description of 'keeping up with the Joneses' is the consumer's desire to match the consumption patterns of their peers or neighbors, emphasizing relative consumption rather than absolute utility.