Multiple Choice
Which pricing strategy yields the largest consumer surplus for buyers whose willingness to pay exceeds the market price?
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5. Consumer and Producer Surplus; Price Ceilings and Floors
Consumer Surplus and Willingness to Pay
Multiple Choice
If a yogurt shop offers 6 different flavors and a consumer is willing to pay up to \$5 for a serving but the market price is \$3, what is the consumer surplus for one serving?
A
\$5
B
\$3
C
\$2
D
\$8
Verified step by step guidance1
Identify the consumer's maximum willingness to pay, which is the highest price the consumer is ready to pay for one serving. In this problem, it is given as \$5.
Identify the market price, which is the actual price the consumer has to pay to buy one serving. Here, the market price is \$3.
Recall the formula for consumer surplus: it is the difference between the consumer's willingness to pay and the market price, expressed as \(\text{Consumer Surplus} = \text{Willingness to Pay} - \text{Market Price}\).
Substitute the given values into the formula: \(\text{Consumer Surplus} = 5 - 3\).
Interpret the result as the net benefit or gain the consumer receives from purchasing the yogurt at the market price, which is the amount saved compared to their maximum willingness to pay.
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