Multiple Choice
The greater the discrepancy between a consumer's needy state and the desired state, the greater:
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5. Consumer and Producer Surplus; Price Ceilings and Floors
Consumer Surplus and Willingness to Pay
Multiple Choice
Why might a company carry inventory?
A
To reduce the variety of products offered to consumers
B
To decrease the company's ability to respond to changes in market demand
C
To increase consumer surplus by raising prices above willingness to pay
D
To ensure products are available to meet consumer demand when willingness to pay is high
Verified step by step guidance1
Understand the role of inventory in a company's operations: Inventory consists of goods that a company holds to meet future demand.
Recognize that carrying inventory helps a company respond quickly to consumer demand fluctuations, ensuring products are available when customers want to buy them.
Analyze the options given: reducing product variety or decreasing responsiveness to market demand are generally not reasons to carry inventory, as inventory aims to improve responsiveness and availability.
Consider the concept of consumer surplus and pricing: carrying inventory does not directly increase consumer surplus by raising prices; instead, it focuses on availability and meeting demand.
Conclude that the primary reason a company carries inventory is to ensure products are available to meet consumer demand, especially when willingness to pay is high, preventing lost sales and improving customer satisfaction.
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