Multiple Choice
How does comparison shopping help you become a smart consumer in terms of consumer surplus and willingness to pay?
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5. Consumer and Producer Surplus; Price Ceilings and Floors
Consumer Surplus and Willingness to Pay
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Which term describes the practice of lowering the price of an item to encourage more consumers to purchase it?
A
Marginal utility
B
Willingness to pay
C
Price discounting
D
Consumer surplus
Verified step by step guidance1
Understand the concept of price discounting: it refers to the practice of reducing the price of a product or service to stimulate higher consumer demand.
Recall that marginal utility measures the additional satisfaction a consumer gains from consuming one more unit of a good, which is different from pricing strategies.
Recognize that willingness to pay is the maximum amount a consumer is ready to pay for a good, not the act of lowering prices.
Identify consumer surplus as the difference between what consumers are willing to pay and what they actually pay, which is a result of pricing but not the practice of lowering prices itself.
Conclude that the term describing the practice of lowering the price to encourage more purchases is 'Price discounting'.
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