Multiple Choice
Which two of the following are common reasons that consumers experience consumer surplus when shopping and buying online?
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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 best illustrates the relationship between consumer surplus and the willingness to pay for a good and its complement?
A
Willingness to pay for a good decreases if the price of its complement decreases, reducing consumer surplus.
B
Consumer surplus increases when the price of a good and its complement both decrease, as consumers are willing to pay more for the combined consumption.
C
Consumer surplus is maximized when the price of a good and its complement are both increased.
D
Consumer surplus is unaffected by changes in the price of a complement because willingness to pay depends only on the price of the original good.
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. Mathematically, consumer surplus can be represented as the area under the demand curve and above the market price.
Recognize the role of complements: two goods are complements if the consumption of one increases the value or willingness to pay for the other. For example, if the price of a complement decreases, the demand for the original good typically increases because the combined consumption is more attractive.
Analyze how a decrease in the price of a complement affects willingness to pay: when the price of a complement falls, consumers derive more combined value from consuming both goods together, which effectively increases their willingness to pay for the original good.
Relate this to consumer surplus: since willingness to pay increases while the price of the original good remains the same or decreases, the consumer surplus increases because the gap between willingness to pay and actual price widens.
Conclude that consumer surplus is maximized when the prices of both a good and its complement decrease, as this encourages higher combined consumption and increases the net benefit to consumers.
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