In the context of consumer surplus, if a consumer is willing to pay \$100 for a product but purchases it for \$80, what percentage of their willingness to pay does the consumer save as surplus?

• A. 25%
• B. 80%
• C. 20%
• D. 10%

Answer: (C)

Verified step by step guidance

1. Identify the consumer's willingness to pay (WTP), which is the maximum amount the consumer is ready to pay for the product. In this problem, WTP = \$100.
2. Identify the actual price paid by the consumer, which is \$80 in this case.
3. Calculate the consumer surplus, which is the difference between the willingness to pay and the actual price paid: \(\text{Consumer Surplus} = \text{WTP} - \text{Price Paid} = 100 - 80\).
4. To find the percentage of the willingness to pay that the consumer saves as surplus, divide the consumer surplus by the willingness to pay and multiply by 100: \(\text{Percentage Surplus} = \left( \frac{\text{Consumer Surplus}}{\text{WTP}} \right) \times 100\).
5. Substitute the values into the formula and simplify to find the percentage of the willingness to pay saved as consumer surplus.