Multiple Choice
When consumers calculate the value of a product, they:
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5. Consumer and Producer Surplus; Price Ceilings and Floors
Consumer Surplus and Willingness to Pay
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Consumers calculate the value of a product by:
A
adding consumer surplus to producer surplus
B
multiplying the market price by the quantity purchased
C
subtracting the cost of production from the market price
D
comparing their willingness to pay with the market price
Verified step by step guidance1
Understand the concept of consumer surplus: it is the difference between what consumers are willing to pay for a good and what they actually pay (the market price).
Recognize that the value a consumer places on a product is based on their willingness to pay, which reflects the maximum price they are ready to pay for the product.
Compare the consumer's willingness to pay with the market price to determine if the consumer gains any surplus or value from the purchase.
If the willingness to pay is higher than the market price, the consumer gains a positive consumer surplus, indicating the product has value to them.
Therefore, the correct way consumers calculate the value of a product is by comparing their willingness to pay with the market price.
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