Which of the following most exemplifies the value-added principle in the context of consumer surplus and willingness to pay?

• A. A market reaches equilibrium where quantity demanded equals quantity supplied.
• B. A producer sets a price equal to the marginal cost of production.
• C. A consumer pays \$10 for a product they value at \$15, gaining \$5 in consumer surplus.
• D. A consumer purchases a product only when the price is below their budget constraint.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the value-added principle in microeconomics, which relates to the additional benefit or surplus a consumer gains when they pay less for a product than the maximum amount they are willing to pay.
2. Step 2: Recall that consumer surplus is defined as the difference between the consumer's willingness to pay and the actual price paid, i.e., \(\text{Consumer Surplus} = \text{Willingness to Pay} - \text{Price Paid}\).
3. Step 3: Analyze each option to see which one directly illustrates a consumer gaining surplus by paying less than their valuation, thus adding value to their purchase experience.
4. Step 4: Identify that the example where a consumer pays \$10 for a product they value at \$15, gaining \$5 in consumer surplus, explicitly demonstrates the value-added principle through the positive difference between willingness to pay and price.
5. Step 5: Conclude that this example best exemplifies the value-added principle because it clearly shows the consumer's net benefit or surplus from the transaction.