Consumer Surplus

posted in: Microeconomics | 1

consumer surplus

The concept of the consumer rift was primarily shaped by Alfred Marshall and Jules Dupuit. This was a well-known and respected English national economist, and a French engineer, who was also a specialist in the field of economics.

Consumer Surplus Definition:

Generally speaking, the consumer surplus is the difference between the price that would be a consumer was willing to pay for the product and the so-called equilibrium price (= intersection of supply and demand ), the customer has to actually pay ultimately.

Consumer Surplus Example:

If you imagine that someone would sell a 50 euro bill for 40 euros, most of the people would probably be skeptical. At the first moment, it would be likely that they would start from counterfeit or fraud, and would not close the deal. But what if there were no hook? The honest seller is serious: for his 50 euros he only needs 40. No fraud, no deception. The buyer agrees and has gained financial benefit? Logical, 10 euros. And that would be the so-called consumer surplus in this example business.

“Private” profit for consumers

Going back to the example: Consumer surplus was 10 euros, because the equilibrium price will be higher than the price that had to be actually paid. You could have sold the 50 Euro note for 42, 45, 47 or even 49.90 euros.

The buyer of the example thus has made an effective gain of 10 Euro or in other words: He benefits from a consumer surplus in the amount of 10 Euro. This pension is to be seen as a private gain for consumers. Actually, the consumer would have been willing to pay more.

Consumer Surplus More Examples:

  • Price that the customer would have been willing to pay: 120 euros
  • Price at which the producer offers the product on the market: 100 euros
  • Consumers: 20 euros
  • Price that the customer would have been willing to pay: 63 euros
  • Price at which the producer offers the product on the market: 56 euros
  • Consumer ressources: 7 euros
  • Price that the customer would have been willing to pay: 25 euros
  • Price at which the producer offers the product on the market: 30 euros
  • Consumers’ rivals: none, because the market price is higher than the maximum price the customer would pay.

One Response

  1. That addresses several of my concerns actually.

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