Consumer Surplus Microeconomics Homework Help
Consumer Surplus is a concept that reflects the satisfaction gained by the customers, well over the cost incurred by them. It could be calculated as the difference in the price that the buyers are willing to pay in order to purchase the thing and the price that they are actually paying to get it in the end. This would be the consumer surplus in simple terms. There is something of a similar kind in the case of the supply side too. Even though the markets are with efficient functioning, there are a lot of instances of consumer surplus, which is actually a good concept. This would be known as the production surplus.
Let us consider an example to explain it in a better way. Let us assume that a person is craving to eat chocolate and is ready to pay $100 for it. But he goes to a shop to see that he has got himself one at just $8. This way, he has saved money and made himself happy. This is called as the consumer surplus, which is $2 in this case.
Let us assume that there is a certain doll that has a market price of 30 dollars, when the demand is 80. From the earlier scenario when the demand was only 60 the price was 40 dollars. So the consumers are ready to pay a sum of about 40 dollars I order to purchase the doll. But when the process is at only 30 dollars, they get the benefit of saving up 10 dollars. This way they are gaining money which is known as the consumer surplus. In this case the consumer surplus is 10 dollars for the consumer.
The consumer surplus can be demonstrated in the easily by means of a graphical representation too. it is usually seen as a triangular area in the case of the demand curve. It is evident from this curve that the consumer in this case is happy about the surplus. It is totally dependant on the price of the good only and nothing else. When the price rises, there is a fall in the consumer surplus that is resulted. In case of a lower price the scenario is totally different. There is a generation of increased levels of consumer surplus, which makes the consumer happy and there are a lot more of purchase that is possible from the same consumer too. This is the way a consumer surplus works in the market scenario.