If consumers cannot resell products, how does this affect the measurement of consumer surplus in a market?

• A. Consumer surplus increases because consumers can sell products at higher prices.
• B. Consumer surplus is accurately measured by the difference between willingness to pay and the market price.
• C. Consumer surplus becomes zero because resale is not possible.
• D. Consumer surplus is measured by the difference between the cost of production and the market price.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the definition of consumer surplus. Consumer surplus is the difference between what consumers are willing to pay for a good and what they actually pay in the market.
2. Step 2: Recognize that consumer surplus is typically measured as the area between the demand curve (which reflects willingness to pay) and the market price, up to the quantity purchased.
3. Step 3: Consider the role of resale. If consumers can resell products, they might gain additional surplus by selling at higher prices, potentially increasing their overall benefit.
4. Step 4: When resale is not possible, consumers cannot capture any additional gains beyond their own use value, so the consumer surplus remains the difference between their willingness to pay and the market price paid.
5. Step 5: Conclude that the inability to resell does not invalidate the standard measurement of consumer surplus; it remains accurately measured by the difference between willingness to pay and the market price.