Multiple Choice
When deciding whether to purchase a product, what should consumers consider regarding its price?
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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 concept of consumer surplus in the context of willingness to pay?
A
A stadium increases ticket prices to match the highest amount fans are willing to pay.
B
A team offers free merchandise to all attendees at a game.
C
A fan decides not to attend a game because the ticket price exceeds their willingness to pay.
D
A fan is willing to pay \$100 for a ticket to a football game but buys it for \$60.
Verified step by step guidance1
Step 1: Understand the concept of consumer surplus. Consumer surplus is the difference between the maximum amount a consumer is willing to pay for a good or service and the actual price they pay.
Step 2: Identify the willingness to pay (WTP) in the problem. Here, the fan's willingness to pay is \$100 for the ticket.
Step 3: Identify the actual price paid by the consumer. In this case, the fan buys the ticket for \$60.
Step 4: Calculate the consumer surplus by subtracting the actual price from the willingness to pay: \(\text{Consumer Surplus} = \text{WTP} - \text{Price Paid}\).
Step 5: Recognize that the example where a fan is willing to pay \$100 but buys the ticket for \$60 best illustrates consumer surplus, because the fan gains a benefit of \$40 from paying less than their maximum willingness to pay.
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