If consumers cannot resell products, how does this affect the measurement of consumer surplus in a market?

• A. Consumer surplus is accurately measured by the difference between willingness to pay and the market price.
• B. Consumer surplus is measured by the difference between the cost of production and the market price.
• C. Consumer surplus increases because consumers can sell products at higher prices.
• D. Consumer surplus becomes zero because resale is not possible.

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the concept of consumer surplus. Consumer surplus is the difference between what consumers are willing to pay for a good and what they actually pay in the market.
2. Step 2: Recognize that consumer surplus is typically measured as the area between the demand curve (which reflects willingness to pay) and the market price, up to the quantity purchased.
3. Step 3: Consider the role of resale in consumer surplus. If consumers can resell products, they might gain additional surplus by selling at higher prices, potentially increasing their overall benefit.
4. Step 4: Analyze the scenario where resale is not possible. Without resale, consumers cannot capture any additional gains beyond their initial purchase, so consumer surplus remains the difference between willingness to pay and the market price.
5. Step 5: Conclude that the inability to resell products does not distort the basic measurement of consumer surplus; it remains accurately measured by the difference between willingness to pay and the market price.