Consumer Surplus Indifference Curves
Consumer Surplus Indifference Curves
Consumer Surplus Indifference Curves
Later on Dr. Alfred Marshall explained this concept in “The Pure Theory of
Domestic Values” as consumer’s rent.
This concept is used to explain the gap between total utility that a consumer
gets from the consumption of a certain commodity and the total money
value which he actually pays for the same.
For Example:
Suppose, a student goes to buy a book. He is willing to pay Rs. 20 for the
book. But he gets the book for Rs. 15. Thus, he has saved Rs. 5. This is
called Consumer’s Surplus.
4. As per Samuelson – “There is always a gap between total welfare and total
economic value. This gap is the nature of a surplus which consumer gets
because he always receives more than he pays.”
The excess of utilities he derives from different commodities and the actual
price paid is called as Consumer’s Surplus. Let us take an example of a
person whose marginal utility, price and Consumer’s Surplus schedule for
bread is given in the following table:
The above table expresses the various amounts of utilities he derives from
the consumption of different units of bread. From the first bread alone he
derives marginal utility of Rs. 10 but the price which he pays is Rs. 2 and
hence Rs. 8 is the Consumer’s Surplus.
Similarly, the Consumer’s Surplus from 2nd, 3rd, 4th and 5th units are 6,
4, 2 and zero respectively. A rational consumer will consume only 5th
commodity where the marginal utility is equal to its price and thereby
maximises his Consumer’s Surplus. If he will consume the 6th unit he
derive zero marginal utility where as he pays the price as Rs. 2. A rational
consumer will not consume that commodity.
Decidedly, the consumer will feel more satisfied if two good substitutes as
well as complements are made available to him than in case he gets only
one of the two at a time. The consumer can properly appreciate the utility
from a pen only when the same is accompanied by ink.
(iii) Further, the gain which accrues to the community from a new product
and the loss from the total dis-appearance of a product from the market are
some of the other problems which are being explained with the idea of
Consumer Surplus.
(iv) In the end, the effects of a tax and a subsidy on total welfare can be
explained by it.