Scribd
Upload
116 views16 pages

Understanding Consumer Surplus

Consumer surplus is defined as the difference between the maximum price a consumer is willing to pay for a product and the actual price paid. It can be calculated as the sum of marginal utility minus the price times the number of units. An example is provided where a consumer is willing to pay Rs. 500,000 for a new car but buys it for Rs. 460,000, resulting in a consumer surplus of Rs. 40,000. A table further illustrates consumer surplus calculation based on marginal utility for different quantities. Consumer surplus is a measure of economic welfare gained from purchasing and consuming goods and services.

Uploaded by

paramjeet kour
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
116 views16 pages

Understanding Consumer Surplus

Consumer surplus is defined as the difference between the maximum price a consumer is willing to pay for a product and the actual price paid. It can be calculated as the sum of marginal utility minus the price times the number of units. An example is provided where a consumer is willing to pay Rs. 500,000 for a new car but buys it for Rs. 460,000, resulting in a consumer surplus of Rs. 40,000. A table further illustrates consumer surplus calculation based on marginal utility for different quantities. Consumer surplus is a measure of economic welfare gained from purchasing and consuming goods and services.

Uploaded by

paramjeet kour
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd

CONSUMER

SURPLUS
WHAT IS CONSUMER SURPLUS ?

Consumer surplus is the


difference between the price
that ‘one is willing to pay’ and
‘the price one actually pays’ for
a particular product.
Consumer surplus = what a consumer is willing
to pay minus what he
actually pays.
=∑ marginal utility –(price x
no. of units)

The amount of money which a person is willing to pay


for a good indicates the ‘amount of utility he derives
from the good’ the greater the amount of money he is
willing to pay ,the greater the utility he obtains from it.
EXAMPLE OF
CONSUMER SURPLUS

1. What happens when you purchase


something for price that is less than your
maximum willingness to pay ?
E.g- you are willing to pay rs 5,00,000 for
a new car and you buy it for rs 4,60,000.
You receive surplus of benefit over cost =
rs 40,000.
Marginal utility and consumer surplus
No. of units Marginal price Net marginal
utility benefit
1. Rs.20 Rs.12 Rs.8
2. Rs.18 Rs.12 Rs.6
3. Rs.16 Rs.12 Rs.4
4. Rs.14 Rs.12 Rs.2
5. Rs.12 Rs.12 Rs.0
6. Rs.10 Rs.12 Rs.(-2)
Total (from 5 units) = 20
consumer
surplus
CONSUMER SURPLUS IS A MEASURE OF THE ECONOMIC
WELFARE THAT PEOPLE GAIN FROM PURCHASING AND THEN
CONSUMING GOODS AND SERVICES.

Consumer surplus is also


known as total welfare or
marshallian surplus.
CONSUMER SURPLUS

Price
Consumer Surplus

Maximum Willingness to Pay for Qo

Po What is paid

o Qo Quantity
CHANGE IN CONSUMER SURPLUS: PRICE
INCREASE

Price
New Consumer Surplus

Original Consumer
Surplus
Loss in Surplus: Consumers paying more
P1
Po
Loss in Surplus: Consumers
buying less

o Q1 Qo Quantity
THANK YOU

- Paramjeet kour

You might also like