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

What is decreasing marginal cost, What is decreasing marginal cost? All...

What is decreasing marginal cost? All additional lawn mowed generates less benefit than the earlier lawn à along with decreasing marginal benefit; every additional unit generat

Assignment, price output determination under monopoly explain

price output determination under monopoly explain

Elasticity, The acme paper company lowers its price of envelopes (1000 cou...

The acme paper company lowers its price of envelopes (1000 count) from $6to $5.40.

Liquidity and the multiple contraction of deposits, Liquidity and the multi...

Liquidity and the multiple contraction of deposits Many of the instruments of monetary policy depend upon limiting liquidity, which has a multiple effect upon bank' deposits t

Explain systematic failures of government, Question 1: (a) How do econ...

Question 1: (a) How do economists go about studying the economics of the public sector? Describe the four stages of analysis. (b) What are the main reasons explaining syst

Economic theory, How does economic theory contribute to managerial decision...

How does economic theory contribute to managerial decisions?

Decrease in demand - effect on equilibrium price, Decrease in Demand ...

Decrease in Demand At the initial equilibrium price P 1 , quantity demanded falls from q 1 to q d .  But the quantity supplied is still q 1 at this price.  Hence, this

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

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

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