Scribd
Upload
14 views10 pages

Understanding Consumer Surplus

Consumer surplus is defined as the difference between the highest price consumers are willing to pay for a good and the actual price paid. It is represented by the area below the demand curve and above the market price, with total consumer surplus being the sum of individual surpluses. Changes in demand and price elasticity affect consumer surplus, which is an important measure of economic well-being for policymakers.

Uploaded by

gjp9b8gqry
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
14 views10 pages

Understanding Consumer Surplus

Consumer surplus is defined as the difference between the highest price consumers are willing to pay for a good and the actual price paid. It is represented by the area below the demand curve and above the market price, with total consumer surplus being the sum of individual surpluses. Changes in demand and price elasticity affect consumer surplus, which is an important measure of economic well-being for policymakers.

Uploaded by

gjp9b8gqry
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 &

Producer surplus
Consumer Surplus
• definition: the highest price consumers are willing to pay for a good
minus the price actually paid.
• Willingness to pay : the maximum amount that a buyer will pay for a
good.
example: If the market price is $90, who will own the consumer surplus?
• In this case, Taylor receives consumer surplus, others not, because they
don’t get the good and without paying anything.

At any quantity, the price given by the demand curve shows the willingness to pay of the marginal
buyer.

Marginal buyer means the buyer who would leave the market first if the price were any higher.
• The total consumer surplus generated by purchases of a good at a
given price is equal to the area below the demand curve but above
that price.
• Or Total CS= Total benefit-Total expenditure
• The net gain that a buyer achieves from the purchase of a good is
called that buyer’s individual consumer surplus.
• The sum of the individual consumer surpluses achieved by all the
buyers of a good is known as the total consumer surplus achieved in
the market.
example question (calculate CS)
How a lower price raise consumer
surplus
Buyers always want to pay less for the goods they buy, a lower price makes buyers of a good better
chang in demand,PED
• As demand increase, CS increase
• As demand decrease, CS decrease
• As demand becomes more price elastic, CS decrease
• As demand becomes more price inelastic, CS increase
• Our goal in developing the concept of consumer surplus is to make
judgments about the desirability of market outcome.
• As a policymaker, you may care about the amount of consumer
surplus. Consumer surplus measures the benefit that buyers receive
from a good as the buyers themselves perceive it.
• In most market, CS does reflect economic well being.

You might also like