A firm's goal in offering a trade discount is to _____.

• A. raise the market price above equilibrium
• B. reduce consumer surplus for all buyers
• C. increase the quantity demanded by lowering the effective price for buyers
• D. discourage consumers from purchasing in bulk

Answer: (C)

Verified step by step guidance

1. Understand the concept of a trade discount: it is a reduction in the listed price offered by a seller to buyers, often to encourage certain purchasing behaviors.
2. Recall that the firm's goal with a trade discount is typically to influence buyer behavior, especially to increase sales volume rather than to raise prices or reduce consumer surplus.
3. Analyze each option: raising the market price above equilibrium is unlikely because discounts lower effective prices; reducing consumer surplus is not the goal since discounts benefit buyers; discouraging bulk purchases contradicts the usual purpose of trade discounts.
4. Recognize that by lowering the effective price through a trade discount, the firm aims to increase the quantity demanded, as lower prices generally encourage more purchases according to the law of demand.
5. Conclude that the correct interpretation is that the firm's goal in offering a trade discount is to increase the quantity demanded by lowering the effective price for buyers.