In the context of consumer surplus and willingness to pay, why might individuals choose to pay off multiple bills proportionally rather than fully paying off one bill at a time?

• A. Because paying off one bill completely always results in a lower total payment.
• B. Because utility is maximized only when all bills are paid in full before making any partial payments.
• C. Because the marginal benefit of paying each bill is highest when payments are distributed, maximizing total consumer surplus.
• D. Because proportional payments reduce the total amount owed due to interest compounding.

Answer: (C)

Verified step by step guidance

1. Understand the concept of consumer surplus, which is the difference between what a consumer is willing to pay for a good or service and what they actually pay.
2. Recognize that willingness to pay varies across different bills or debts, meaning the marginal benefit (additional satisfaction) from paying off each bill differs.
3. Analyze why paying off multiple bills proportionally can maximize total consumer surplus: by allocating payments where the marginal benefit is highest, the consumer gains more overall satisfaction compared to fully paying one bill before addressing others.
4. Consider that paying one bill fully before others might ignore the higher marginal benefits from partially paying other bills, leading to a less efficient allocation of limited resources.
5. Conclude that distributing payments proportionally aligns with maximizing total utility or consumer surplus, as it balances the marginal benefits across all bills rather than focusing on just one.