Which of the following best explains how product characteristics that satisfy customer needs relate to consumer surplus?

• A. They increase consumer surplus by raising the willingness to pay above the market price.
• B. They decrease consumer surplus by lowering the willingness to pay below the market price.
• C. They have no effect on consumer surplus or willingness to pay.
• D. They only affect producer surplus, not consumer surplus.

Answer: (A)

Verified step by step guidance

1. Understand the concept of consumer surplus: it is the difference between what a consumer is willing to pay for a product and the actual market price they pay.
2. Recognize that product characteristics that satisfy customer needs effectively increase the consumer's willingness to pay because the product becomes more valuable or desirable to them.
3. Since consumer surplus is calculated as willingness to pay minus market price, an increase in willingness to pay (with market price constant) leads to a larger consumer surplus.
4. Evaluate the options by considering how changes in willingness to pay affect consumer surplus: if willingness to pay rises above market price, consumer surplus increases; if it falls below, consumer surplus decreases.
5. Conclude that product characteristics that satisfy customer needs increase consumer surplus by raising willingness to pay above the market price.