Market demand and consumers surplus, Managerial Economics

Assignment Help:

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


Related Discussions:- Market demand and consumers surplus

Define managerial economics according to mcnair and meriam, Define Manageri...

Define Managerial economics according to McNair and Meriam McNair and Meriam:  "Managerial economics comprises the use of economic modes of thought to analyse business situatio

Calculate the disk capacity and maximum data transfer rate, Consider a magn...

Consider a magnetic disk consisting of 16 heads and 400 cylinders. This disk is divided into four 100-cylinder zones with the cylinders in different zones containing 160, 200, 240,

Importance of demand forecast, Management Decisions: An effective demand f...

Management Decisions: An effective demand forecast assists the management to take suitable steps in factors which are relevant to decision making like plant capacity, raw-material

What is lerner’s index, Antitrust authorities at the Federal Trade Commissi...

Antitrust authorities at the Federal Trade Commission are reviewing your company's recent merger with a rival firm. The FTC is concerned that the merger of two rival firms in the s

Types of income elasticity of demand, Types of Income Elasticity of demand ...

Types of Income Elasticity of demand Depending upon the product, demand might increase or decrease in response to a rise in income.  There are thus five types of income Elasti

Definition of perfect competition, 1. Prof. Marshall 'The more nearly perfe...

1. Prof. Marshall 'The more nearly perfect a market is, the stronger is the tendency for same price to be paid for same thing at the same time in all parts of the market". 2. Pr

Environmental degradation, Comment on the consequences of environmental deg...

Comment on the consequences of environmental degradation on the economy of a community.

Short-term policies to cure balance of payment deficits, Short-Term Policie...

Short-Term Policies Deflation is a policy of reducing expenditure with the intention of curing a deficit by reducing the demand for imports.  This reduction of expenditure m

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd