Market demand and consumers surplus, Managerial Economics

Market demand and consumers surplus

Suppose that the market price of a cup of coffee is K£4 but the consumer was willing to pay £9 for the first unit, £8 for the second, £7 for the third, £6 for the fourth, £5 for the fifth and £4 for the sixth.

However, he pays the market price for all the six cups.  The consumer thus earns a surplus on the first five units consumed i.e.

A measure of the difference between the value that consumers place on their total consumption of some commodity and the amount they actually pay for it.

For continuous demand curves, consumer's surplus can be measured by the area under the demand curve and above the price.

758_market demand analysis.png

NB:  The shaded area represents utility which the consumers received but did not pay for i.e. consumer surplus.

Mathematically it can be calculated as follows:

£5 + £4 + £3 + £2 + £1 = £15

*Weaknesses of cardinalist approach

Posted Date: 11/27/2012 5:19:17 AM | Location : United States







Related Discussions:- Market demand and consumers surplus, Assignment Help, Ask Question on Market demand and consumers surplus, Get Answer, Expert's Help, Market demand and consumers surplus Discussions

Write discussion on Market demand and consumers surplus
Your posts are moderated
Related Questions
FUNCTIONS OF CENTRAL BANK Economists and financial experts lack in unanimity about the functions of a central bank. According to Kisch and Elkin, the essential function of a c

Asuume there are two inputs in the production function, labor & capital, and these two inputs are perfect substitutes. The existing technology permits one machine to do the work of

Objective of Fiscal Policy As an instrument of macroeconomic policy, the goals of fiscal policy are likely to be different in different countries and in the same country in dif

WAGE DETERMINATION, POLICY AND THEORIES Wages and salaries are rewards to labour as a factor of production of goods and services.  In ordinary speech a distinction is frequent

I have a research paper that is due, my schedule is so full that I need assistance due to overload are you interested in the research paper? course - managerial economics TEXT: Man

Suppose that Betsy's utility function is given by the equation U=Y0.3 where Y is calculated in thousands of dollars. Betsy's present job pays her $20,000 (Y=20) per year and she ca

what is the importance of demand forecasting to managers

discuss baumols dynamic models

Aside from the price of a product and its substitutes, another significant element of demand for a product is consumer's income. As noticed previously, relationship between demand

SEARCH THEORIES  -  A BRIEF' HISTORICAL OVERVIEW   A search theory of unemployment is found even in the writings of A. C. Pigou in  the inter-war  period. To explain the  high