In the context of consumer surplus and willingness to pay, which portion of total spending is most influenced by changes in interest rates?

• A. Spending on necessities
• B. Spending on durable goods
• C. Spending on non-durable goods
• D. Spending on services

Answer: (B)

Verified step by step guidance

1. Understand the concept of consumer surplus, which is the difference between what consumers are willing to pay for a good or service and what they actually pay.
2. Recognize that willingness to pay can be influenced by interest rates, especially when consumers consider the timing of their purchases and financing options.
3. Identify that spending on necessities tends to be less sensitive to interest rate changes because these goods are essential and demand is relatively inelastic.
4. Consider that spending on durable goods (such as cars, appliances, and furniture) is more sensitive to interest rates because these purchases are often financed through loans or credit, making consumers more responsive to changes in borrowing costs.
5. Conclude that changes in interest rates most influence the portion of total spending on durable goods, as consumers adjust their willingness to pay and timing of purchases based on financing costs.