Multiple Choice
In the context of consumer surplus and willingness to pay, which of the following statements is most likely to be true for a consumer purchasing a portfolio of 40 randomly selected stocks?
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5. Consumer and Producer Surplus; Price Ceilings and Floors
Consumer Surplus and Willingness to Pay
Multiple Choice
When an advertiser buys all available advertising space on a bus, ads will most likely:
A
Eliminate competing ads, potentially increasing the advertiser's consumer surplus
B
Decrease the willingness to pay of other advertisers for future bus ads
C
Increase the total consumer surplus for all advertisers
D
Capture the entire consumer surplus of bus riders who value the ads
Verified step by step guidance1
Step 1: Understand the concept of consumer surplus in the context of advertising. Consumer surplus is the difference between what consumers are willing to pay and what they actually pay. In advertising, it can be interpreted as the benefit consumers receive from viewing ads they value without paying for them directly.
Step 2: Analyze what happens when a single advertiser buys all available advertising space. This action eliminates competing ads, meaning no other advertisers can display their messages on the bus.
Step 3: Consider the effect on other advertisers. Since no space is left for competitors, their willingness to pay for future ads on the bus is likely to decrease because the opportunity to advertise there is removed.
Step 4: Evaluate the impact on total consumer surplus. With only one advertiser's message shown, the variety and competition among ads decrease, which generally reduces the total consumer surplus for all advertisers combined.
Step 5: Assess whether the single advertiser can capture the entire consumer surplus of bus riders. While the advertiser may increase their own consumer surplus by eliminating competition, it is unlikely they capture the entire consumer surplus of all bus riders, as not all riders value the ads equally or at all.
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