Multiple Choice
Which of the following best explains consumer surplus in relation to a buyer's willingness to pay?
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5. Consumer and Producer Surplus; Price Ceilings and Floors
Consumer Surplus and Willingness to Pay
Multiple Choice
Which of the following enables a seller to capture the entire consumer surplus in a market?
A
Allowing free entry and exit in a competitive market
B
Perfect price discrimination
C
Imposing a price ceiling below equilibrium price
D
Setting a single uniform price equal to marginal cost
Verified step by step guidance1
Understand the concept of consumer surplus: it is the difference between what consumers are willing to pay for a good and what they actually pay.
Recognize that in a perfectly competitive market with free entry and exit, firms are price takers and cannot capture consumer surplus; instead, consumer surplus remains with consumers.
Know that imposing a price ceiling below the equilibrium price typically reduces producer surplus and can increase consumer surplus, but it does not allow sellers to capture all consumer surplus.
Understand that setting a single uniform price equal to marginal cost leads to efficient allocation but usually results in zero economic profit for sellers and leaves consumer surplus with consumers.
Identify that perfect price discrimination (also called first-degree price discrimination) allows the seller to charge each consumer their maximum willingness to pay, thereby capturing the entire consumer surplus.
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