Multiple Choice
Which term describes the difference between what a consumer is willing to pay for a good and what the consumer actually pays?
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5. Consumer and Producer Surplus; Price Ceilings and Floors
Consumer Surplus and Willingness to Pay
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Which of the following best describes the concept of 'willingness to pay' for goods such as a pair of shorts, a DVD, a car, or a necklace?
A
The minimum price a seller will accept for a good
B
The maximum amount a consumer is willing to pay for a good
C
The average price paid by all consumers for a good
D
The market equilibrium price of a good
Verified step by step guidance1
Understand that 'willingness to pay' (WTP) is a concept from consumer theory in microeconomics, which measures the maximum amount a consumer is ready to pay for a good or service.
Recognize that WTP reflects the value or utility a consumer expects to gain from the good, and it varies from person to person depending on preferences and income.
Distinguish WTP from other price concepts: it is not the minimum price a seller accepts (which relates to supply), nor the average price paid by consumers, nor the market equilibrium price (where supply equals demand).
Recall that the maximum willingness to pay sets an upper bound on the price a consumer is willing to pay before deciding not to purchase the good.
Therefore, the best description of 'willingness to pay' is the maximum amount a consumer is willing to pay for a good.
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