Question

can you explain in details how did we come up with this answer and how to answer similar.. what is the economic concept behind it

A serious drought has created a shortage of food across the country. In an attempt to maximize profits, one grocery store decided to auction off its limited supply of food. Which of the following scenarios is the MOST likely to occur in this situation? A. The willingness to pay for food would rise. B. The magnitude of the food shortage would increase. C. The consumers with the lowest opportunity cost of time would receive food. D. The consumers with the highest willingness to pay would receive food. Answer:

Answer 1

Since the drought has caused shortage of food across the country and food is a necessity good, people would attempt to hoard as much food as they can. This is because they have future expectations of shortage getting adverse. In such a scenario if a grocery store decides to auction off its limited supply of food, the highest bidder would get to take the food home.

Willingness to pay is the indicative amount of money a consumer is willing to pay for a particular product. Naturally, in such a scenario the price every consumer is willing to pay will be higher than what it would have been on a normal day.

Thus (a) The willingness to pay for food would rise is the correct answer.

Option (d) The consumers with the highest willingness to pay would receive food- is also correct but option (a) is more accurate.