Consumers’ Surplus under demand curve

Consumers’ Surplus under demand curve -...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Consumers’ Surplus under demand curve: It can also be explained as the area under the demand curve. This can be illustrated as: No. of units consumed MU Price Consumers’ Surplus (Mu-P) 1 5 2 3 2 4 2 2 3 3 2 1 4 2 2 0 5 1 2 - 6 0 2 - 6 (Total CS) In the example we have 6 units of a good. The marginal utility that a consumer enjoys from these units, goes on falling as…5, 4, 3, 2, 1 and 0. The market price is $2 per unit. Assuming each of the utility units to be worth a dollar, the consumer will
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: equate Mu with price. Consumer equilibrium occurs at the fourth unit where Mu = Price = 2 which maximizes the consumer’s total satisfaction. For purchasing 4 units of the good he has to spend $8 (an objective evaluation) but he actually receives a total utility of 14 units (5 + 4 + 3 + 2) from the four units he purchases. Thus he receives 6 units of ’extra’ satisfaction (14 - 8 = 6): this is the consumers’ surplus ....
View Full Document

{[ snackBarMessage ]}

Ask a homework question - tutors are online