Question

Question Six

We know that for most products or services that there are some people who are willing and able to pay a high price for a good and others who are only willing and able to pay a low price.

Assume that there is a connection between the price that someone is willing and able to pay and the opportunity cost of the person’s time. In particular, for people who are willing and able to pay a higher price the opportunity cost of their time is higher than for people who are only willing and able to pay a lower price.

Answer 1

Willingness to pay is basically the maximum amount an individual is willing to hand over for a product or a service. The price that the person is willing to pay will be a point somewhere between the willingness to pay and the sellers willingness to accept the price amount.

Opportunity cost is the cost incurred by not enjoying the benefit associated with the alternative choice.

For people who are willing to pay a higher amount they expect greater return from their product or service thus the potential profit it gives up by not investing in the other option is the opportunity cost. Thus they are foregoing the higher profit which they would have received by investing in the product and because of which their opportunity cost is higher.