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

Determine the scope of managerial economics, Determine The scope of manager...

Determine The scope of managerial economics The scope of managerial economics involves following subjects: 1.  Theory of demand 2.  Theory of production 3.  Theory of

Consumption function, The Consumption Function The consumption functio...

The Consumption Function The consumption function is the relationship  [expressed in mathematical or diagrammatic form] between planned consumption and other independent varia

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.

Actual income and full employment income, Actual income and Full employment...

Actual income and Full employment income Full employment income (Also called Potential National) is the national income that could be produced when the country's factors of pr

Marginal damage curve , Consider a model world which is subject to a risk o...

Consider a model world which is subject to a risk of global climate change. The damage is known to be from greenhouse gas (GHG) emissions as indicated by the marginal damage curve

Expected utility, (Only for extra credit) Consider Freddy on a rainy Thursd...

(Only for extra credit) Consider Freddy on a rainy Thursday afternoon after losing in his favorite video game. His friend Tommy comes over to cheer him up and offers him the follow

State the specific time of demand, State the Specific Time of demand De...

State the Specific Time of demand Demand should be assigned specific time. For instance, it is an incomplete proclamation to state that demand of air conditioners is 4,000 at t

Determine the income effect of law of demand, Determine the Income Effect o...

Determine the Income Effect of law of demand As a result of fall in the price of a commodity, real income of its consumer increase at least in terms of this commodity. Or we c

Pigou effect, The pigou effect, also called the real balance effect, is nam...

The pigou effect, also called the real balance effect, is named after the well known Cambridge school economist Arthur Cecil pigou who had first clearly formulated the relationship

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