Charging prices closer to what consumers are willing to pay for a good
A)Reduces consumers surplus
B)Increases producer surplus
C)Both a and b
D)None of the above

Question

​Charging prices closer to what consumers are willing to pay for a good
A)​Reduces consumers surplus
B)Increases producer surplus
C)Both a and b
D)​None of the above

Quizplus · Accepted Answer

Charging prices closer to what consumers are willing to pay for a good will reduce consumer surplus but increase producer surplus, resulting in benefits for both parties. Consumer surplus refers to the difference between what a consumer is willing to pay and the actual price they pay, whereas producer surplus refers to the difference between the actual price received by a producer and the minimum price they are willing to accept for a good or service. By charging prices closer to what consumers are willing to pay, the producer can capture more of the value created by the exchange, which leads to a higher producer surplus. However, consumers will have to pay more for the same good or service, resulting in a reduction in consumer surplus.

​Charging Prices Closer to What Consumers Are Willing to Pay

Charging Prices Closer to What Consumers Are Willing to Pay