Which of the following best describes a good price judgment from the perspective of consumer surplus and willingness to pay?

• A. When the price paid is unrelated to the consumer's willingness to pay.
• B. When the price paid is equal to the consumer's willingness to pay, resulting in zero consumer surplus.
• C. When the price paid is greater than the consumer's willingness to pay, leading to negative consumer surplus.
• D. When the price paid is less than the consumer's willingness to pay, maximizing consumer surplus.

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the concept of willingness to pay (WTP), which is the maximum amount a consumer is ready to pay for a good or service based on the value they derive from it.
2. Step 2: Define consumer surplus as the difference between the consumer's willingness to pay and the actual price paid, mathematically expressed as \(\text{Consumer Surplus} = \text{WTP} - \text{Price Paid}\).
3. Step 3: Analyze the scenarios: if the price paid is equal to WTP, consumer surplus is zero; if the price paid is greater than WTP, consumer surplus is negative (which typically means the consumer will not purchase); if the price paid is less than WTP, consumer surplus is positive.
4. Step 4: Recognize that a good price judgment from the consumer's perspective is when the price paid is less than their willingness to pay, as this maximizes consumer surplus and thus the net benefit to the consumer.
5. Step 5: Conclude that the best description of a good price judgment is the one where the price paid is less than the consumer's willingness to pay, maximizing consumer surplus.