Multiple Choice
In microeconomics, which term best describes the maximum amount a consumer is willing to pay for a good or service?
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5. Consumer and Producer Surplus; Price Ceilings and Floors
Consumer Surplus and Willingness to Pay
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In the context of consumer surplus and willingness to pay, which of the following best describes 'willingness to pay'?
A
The maximum amount a consumer is willing to pay for a good or service
B
The difference between the market price and the cost of production
C
The total revenue earned by a firm from selling a product
D
The average number of times a customer is exposed to a marketing message
Verified step by step guidance1
Understand that 'willingness to pay' (WTP) refers to the maximum amount a consumer is ready to pay for a good or service, reflecting the value they place on it.
Recognize that consumer surplus is the difference between the willingness to pay and the actual market price paid by the consumer.
Eliminate options that do not relate to consumer valuation, such as 'difference between market price and cost of production' which relates to producer surplus or profit.
Exclude options related to firm revenue or marketing exposure, as these do not describe consumer valuation or willingness to pay.
Conclude that the best description of willingness to pay is 'the maximum amount a consumer is willing to pay for a good or service' because it directly captures the consumer's valuation.
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