Multiple Choice
If consumers' perceptions of a good improve, which of the following is most likely to occur?
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5. Consumer and Producer Surplus; Price Ceilings and Floors
Consumer Surplus and Willingness to Pay
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If demand is not uniform and constant, the stockout risks can be controlled by:
A
ignoring fluctuations in willingness to pay
B
reducing consumer surplus
C
implementing inventory management techniques such as safety stock
D
setting prices equal to marginal cost
Verified step by step guidance1
Understand the concept of stockout risk: Stockout risk refers to the probability that inventory will be insufficient to meet demand, leading to lost sales or dissatisfied customers.
Recognize that when demand is not uniform and constant, it fluctuates unpredictably, making it challenging to maintain the right inventory levels.
Identify that ignoring fluctuations in willingness to pay or reducing consumer surplus do not directly address the variability in demand or inventory levels.
Learn that setting prices equal to marginal cost is a pricing strategy and does not inherently control stockout risks caused by demand variability.
Conclude that implementing inventory management techniques, such as maintaining safety stock (extra inventory held to buffer against demand fluctuations), is the appropriate method to control stockout risks when demand is uncertain.
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