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    Consumer Surplus

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    paramjeet kour
    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.

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    Consumer Surplus

    Uploaded by

    paramjeet kour
    199 views16 pages
    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.

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    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.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    199 views16 pages

    Consumer Surplus

    Uploaded by

    paramjeet kour
    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.

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    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

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