This seemingly simple scenario – Celine purchasing an MP3 player for $90 – provides a rich opportunity to explore fundamental economic concepts, particularly consumer surplus. Understanding consumer surplus requires grasping the relationship between a consumer's willingness to pay (WTP) and the actual market price. This article will delve into the specifics of Celine's purchase, analyzing the provided multiple-choice question and expanding upon the broader economic principles involved. We will also examine the context of the question's appearance within various study materials, such as flashcards and solved problems, to understand its significance in an educational setting.
The Problem and the Solution
The core problem states: Celine buys a new MP3 player for $90. She receives consumer surplus of $15 on her purchase. Her willingness to pay is...? The options are: A. $15, B. $90, C. $105, D. $75.
The correct answer is C. $105.
Consumer surplus represents the difference between what a consumer is willing to pay for a good or service and what they actually pay. In simpler terms, it's the extra benefit a consumer receives beyond the price they paid. In Celine's case, she received a consumer surplus of $15. This means her willingness to pay was $15 more than the $90 she actually spent. Therefore, her willingness to pay was $90 + $15 = $105.
Understanding Consumer Surplus in Depth
Consumer surplus is a crucial concept in microeconomics. It's a measure of the net benefit a consumer receives from participating in a market transaction. It's directly linked to the demand curve, which illustrates the relationship between the price of a good and the quantity demanded. A consumer's willingness to pay is represented by a point on the demand curve. The higher the willingness to pay, the greater the potential consumer surplus.
Several factors influence a consumer's willingness to pay, including:
* Individual Preferences: Personal tastes and preferences heavily influence how much a consumer is willing to spend on a particular item. Celine's high willingness to pay for the MP3 player suggests she places a high value on its features and functionality.
* Income: A consumer's income level significantly impacts their purchasing power and, consequently, their willingness to pay. Higher income generally allows for a higher willingness to pay.
* Price of Substitutes: The availability and price of substitute goods affect the willingness to pay for a specific product. If cheaper alternatives exist, the willingness to pay for the more expensive option might be lower.
* Price Expectations: Anticipated future price changes can influence current willingness to pay. If Celine expects the price of MP3 players to rise, she might be more willing to pay the current price.
* Information Asymmetry: A lack of complete information about the product or market can affect willingness to pay. If Celine had more information about competing products, her willingness to pay might have been different.
The Significance of the Question in an Educational Context
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