1. Option A is correct. Willingness to pay is the amount what an individual is ready to pay in the market to buy a good. And Michael is ready to buy a refrigerator at $3500, for his new house. But the market price is lower (i.e.$3000) than the price that he is ready to pay.
2. Option A is correct. Consumer surplus increases because there is no change in the price of hot buns for the consumer, he is paying the same amount but the producer surplus is decreased because now his input cost has been increased.
Michael values a stainless steel refrigerator for his new house at $3,500, but he succeeds in...