In the context of consumer surplus and willingness to pay, how does the expectation of a future price decrease typically affect current demand for a good?

• A. Current demand increases because consumer surplus is maximized at higher prices.
• B. Current demand remains unchanged since future prices do not affect present decisions.
• C. Current demand decreases as consumers wait for the lower future price.
• D. Current demand increases because consumers want to buy before the price drops.

Answer: (C)

Verified step by step guidance

1. Understand the concept of consumer surplus, which is the difference between what consumers are willing to pay for a good and what they actually pay.
2. Recognize that if consumers expect the price of a good to decrease in the future, they anticipate a higher consumer surplus by purchasing later at a lower price.
3. Analyze how this expectation affects current demand: consumers may delay their purchases to benefit from the lower future price, leading to a decrease in current demand.
4. Contrast this with scenarios where consumers expect prices to rise, which would typically increase current demand as consumers try to buy before prices go up.
5. Conclude that the expectation of a future price decrease generally causes current demand to decrease because consumers wait for the lower price to maximize their consumer surplus.