Willingness to pay (WTP) measures the minimum amount an individual is willing to pay in order to obtain a good or service.

Question

BlackTom AI · Accepted Answer

The question states: 'Willingness to pay (WTP) measures the minimum amount an individual is willing to pay in order to obtain a good or service.'

Option 1: True
This claim is inaccurate. Willingness to pay (WTP) is typically defined as the maximum amount a consumer is willing to pay to obtain a good or service, not the minimum. Misunderstanding the term could lead to thinking it represents the smallest price a consumer would accept, which is actually closer to the concept of willingness to accept (WTA) rather than WTP.

Option 2: False
This statement correctly identifies the standard definition of WTP as the maximum amount a person is willing to pay to obtain the good or service. It contrasts with the idea of a minimum amount, which would mischaracterize WTP and mix it up with other concepts like minimum acceptable price or willingness to accept. The distinction is important for consumer surplus analysis, pricing, and welfare economics.

In sum, option 1 misdefines WTP by conflating it with a minimum amount, while option 2 aligns with the conventional definition of WTP as the maximum amount a consumer would be willing to pay to acquire the item.

Willingness to pay (WTP) measures the minimum amount an individual is willing to pay in order to obtain a good or service.

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