Multiple Choice
Brad is willing to pay \$50 for a concert ticket, but the market price is \$35. Which of the following illustrates the most economically sound choice for Brad?
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5. Consumer and Producer Surplus; Price Ceilings and Floors
Consumer Surplus and Willingness to Pay
Multiple Choice
Suppose four individuals are willing to pay the following amounts for a concert ticket: Alex (\$50), Brooke (\$40), Casey (\$30), and Drew (\$20). The ticket price is \$35. Which person made the best payment decision for their preferences?
A
Drew, because he paid less than his willingness to pay.
B
Casey, because she paid more than her willingness to pay.
C
Alex, because he paid exactly his willingness to pay.
D
Brooke, because she paid less than her willingness to pay and gained consumer surplus.
Verified step by step guidance1
Identify each individual's willingness to pay (WTP) and the actual ticket price. Here, WTPs are Alex: \$50, Brooke: \$40, Casey: \$30, Drew: \$20, and the ticket price is \$35.
Compare the ticket price to each person's willingness to pay to determine if they would buy the ticket. A person will buy the ticket if their WTP is greater than or equal to the price.
Calculate the consumer surplus for each individual who buys the ticket. Consumer surplus is given by the formula: \(\text{Consumer Surplus} = \text{WTP} - \text{Price}\).
Evaluate who made the best payment decision by identifying the individual who paid less than their WTP and thus gained a positive consumer surplus.
Conclude that the person with the highest positive consumer surplus made the best payment decision, as they received the greatest net benefit from the purchase.
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