Multiple Choice
Which type of advertising is designed to influence consumer demand for a specific brand rather than for a general product category?
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5. Consumer and Producer Surplus; Price Ceilings and Floors
Consumer Surplus and Willingness to Pay
Multiple Choice
Which two of the following are common reasons that consumers experience consumer surplus when shopping and buying online?
A
Online prices are often lower than consumers' maximum willingness to pay.
B
Consumers are required to pay their maximum willingness to pay online.
C
Online shopping always eliminates transaction costs.
D
Consumers can easily compare prices across multiple sellers online.
Verified step by step guidance1
Understand the concept of consumer surplus: it is the difference between the maximum price a consumer is willing to pay for a good or service and the actual price they pay.
Identify that consumer surplus occurs when the actual price paid is less than the consumer's maximum willingness to pay, which means consumers benefit from paying less than what they value the product.
Recognize that online prices are often lower than consumers' maximum willingness to pay because of increased competition and lower overhead costs, leading to potential consumer surplus.
Note that consumers can easily compare prices across multiple sellers online, which increases market transparency and helps consumers find lower prices, thus increasing consumer surplus.
Eliminate options that do not contribute to consumer surplus: paying maximum willingness to pay does not create surplus, and online shopping does not always eliminate transaction costs.
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