Multiple Choice
Which of the following could explain why a manager has estimated a positive net present value (NPV) for a project, in the context 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 of the following best describes the responsibility of buyers in the context of consumer surplus and willingness to pay?
A
Determining their maximum willingness to pay for a good or service
B
Calculating producer surplus for sellers
C
Setting the market price for goods and services
D
Regulating supply in the market
Verified step by step guidance1
Understand the concept of consumer surplus: it is the difference between what a buyer is willing to pay for a good or service and what they actually pay.
Recognize that a buyer's willingness to pay represents the maximum amount they are prepared to spend to obtain a good or service.
Identify that consumer surplus arises when the market price is less than the buyer's willingness to pay, creating a benefit for the buyer.
Note that buyers do not calculate producer surplus, set market prices, or regulate supply; these responsibilities belong to sellers, market forces, or regulatory bodies.
Conclude that the primary responsibility of buyers in this context is determining their maximum willingness to pay for a good or service.
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