Consumer Surplus Definition
Consumer surplus is the quantity, which is difficult to measure, represented by the difference between what a person would be willing to pay for an item, and the actual price paid. Typically, in the study of microeconomics, consumer surplus is represented on a supply and demand graph as a triangular area under the demand curve, and above the market price. It is somewhat related to producer surplus, which is basically another term for the profit that a producer makes on the sale of a produc.
Only the marginal consumer is willing to pay just the market price in a typical supply and demand equilibrium. The consumers would be willing to pay more than the market price are what makes the demand curve slope downward. The amount that these consumers would be willing to pay, but do not have to pay is known as the consumer surplus.
Theory
History
French economist Jules Dupuit is credited with developing consumer surplus as a measure of consumer satisfaction in 1844. British economist Alfred Marshall is noted for later contributions to the concept.
Effects
Marshall believed that as purchases of a commodity increase, consumer satisfaction as a whole will eventually exceed total market value. For example, consumers might only pay a few dollars to have a punctured car tire plugged. Yet the plug is worth more to people who avoid paying a higher price for a new tire, although they probably were willing to do so to keep the car in operation.
Books about Consumer Surplus on Amazon.com
Book Name:Consumer surplus, demand functions, and policy analysis
- Paperback: 98 pages
- Publisher: Rand (1983)
- Language: English
- ISBN-10: 0833005162
- ISBN-13: 978-0833005168
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