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  Consumer surplus

Consumer’s surplus:

The concept of consumer’s excess was first introduced by J.A.Dupuit, a French engineer – economist in the year1844. Marshall builds up the concept in his work ‘Principles of Economics’ (in 1890).

Consumer’s excess is experienced in commodities that are highly helpful however relatively cheap. For illustration, newspaper, match box, salt, postage stamp and so on. For such commodities, we are ready to pay more than what we really pay, when the alternative is to go without them. The additional satisfaction a consumer derives is termed as consumer’s surplus.

Let assume a consumer who wants to buy a shirt. He is willing to pay $ 250 for it. However the real price is only $ 200. Therefore he enjoys an excess of $ 50. This is termed as consumer’s surplus.

Definition:

Marshall states Consumer’s surplus as follows:

“The surplus of price that a person would be willing to pay instead than go without the thing, over that which he really does pay, is the economic measure of this excess of satisfaction. It may be termed as consumer’s surplus.”

Assumptions:

1. Cardinal utility, which is, the utility of a commodity is considered in money terms.

2. Marshall supposes that there is definite correlation among expected satisfaction (i.e., utility) and realized satisfaction (i.e., actual).

3. Marginal utility of money is steady.

4. Absence of differences in tastes, income, fashion and so on.

5. Independent utilities and independent goods.

6. Demand for a commodity, based on its price alone; it eliminates other determinants of demand.

 

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