Question

What is the role of willingness-to-pay relative to ability-to-pay in reflecting individual and societal values? What are some other means of expressing and comparing individual values?

Answer 1

Ability-to-pay is a principle of consumer demand theory in economics where a consumer is evaluated based on his or her income the ability to pay for consuming certain goods and services at a specific price.

Ability To Pay ( ATP ) is a person's ability to pay for goods and services consumed with the income that he has. The main factor here is the consumers' income.

In the theory of consumer demand in economics, willingness to pay is the largest sum of money that a consumer is willing to pay for consuming a unit of goods and services rather than go without it.

Willingness To Pay (WTP) is the willingness to pay for goods services received .

The approach used in the analysis of WTP are based on the user 's perception about utility that he may derive from consumption of the goods and services.

Main factors-

1. The products offered

2. The quality and quantity of services.

The role of willingness to pay relative to ability to pay reflects the consumer surplus if any that he may be deriving from the consumption. It is in fact a better measure of welfare of the consumer than ability to pay.

The principle of ability-to-pay can also help in evaluating the effectiveness of a project or a plan. If in the long term consumer surplus is higher, the project or the plan should be implemented.

Higher the consumer surplus, more the welfare of individuals, societies.

Some other means of expressing and comparing individual values is through indifference curves of Hicks - Allen, Marginal Utility schedule of Marshall.