consumer's surplus.

2. WELCOME EVERYONE

3. MEET THE MEMBERS
Sharmin Sultana Nipa. ID: 1814
Tanjum SarwarRimi. ID:1813
Afsana Fairuj Yeati ID: 1812
ChoudhuryRaya Adiba. ID:1815
Masuma Alam Prova. ID: 1811

4. What isconsumer’s surplus ?
Consumer surplus is defined as the difference between the total amount that consumers are
willing and able to pay for a good or service and the total amount that they actually do pay.
01
10,000 7,000

5. Displacementof consumer’s surplus
Unit x MUx Price x Consumer's
surplus
1
2
3
4
5
10,000
9000
8000
7000
6000
7000
7000
7000
7000
7000
3000
2000
1000
0000
-1000

6. Price line
Quantity line
10,000
9,000
8,000
7,000
6,000
1 2 3 4 5
Consumer’s surplus
10,000-7000 = 3000
9000-7000 = 2000
8000-7000 = 1000
7000-7000 = 0000
6000-7000 = -1000

7. consumer’s surplus and form of market.
There are, we assume, two form of market while calculating consumer’s surplus.
Perfect
market
Discriminating
market

8. Difficulties of measurement !
Consumer’s surplus = total utility – price x number of units purchased.
WOW! So simple.

9. A complete listof demand prices is not available.01
We are aware of a part of the demand schedule. As we do not know what prices we are prepared
to pay for every one of the units, the whole of the consumer’s surplus can not be ascertained.
NOT
AVAILABLE

10. Necessaries.02
Consumer’s surplus in case the case of necessaries of life and conventional necessaries is
indefinite and immeasurable.

11. Consumer’s circumstances.03
Consumer’s circumstances makes the measurement of consumer’s surplus difficult and inexact.

12. Consumer’s sensibilities.04
every consumer has his own taste and sensibilities. Some desire a commodity more ardently
than others, and are, therefore, prepared to offer more.

13. Change In marginal utility of money.05
As we go on buying a commodity, less and less amount of money is left with us. Hence, the marginal utility
of each unit of money increases. But, when we measure consumer’s surplus, we do not make any
allowance for this change in marginal utility of money.

14. Change in earlier utilities.06
With every increase in the purchase of a commodity, the urgency of the need for the earlier purchase is
diminished and their utility decreases.

15. Substitute.07
There is a difficulty arising out of the presence of substitute. To meet this difficulty, the two substitute,
say, tea and coffee, can be regarded as one commodity.

16. Commodities used for distinction.08
In such cases, diamonds, the fall in price will not lead to increase in demand. When such commodities
become cheap, they no longer confer distinction on the user. The demand for them, therefore, may fall
off. Hence, a fall in price in such cases will not increase consumer’s surplus.

17. Measurement of consumer’s surplus
With indifference curve.
Professor J.R.Hicks has established a consumer’s surplus measurement method avoiding
criticisms of Marshallian measurement of consumer’s surplus.
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18. Prof. Hicks concept of consumer’s surplus.
Professor Hicks further developed the concept of consumer’s surplus and has propounded four
kinds of consumer’s surplus.
Price compensation
Variation.
Quantity compensation
Variation.
Price equivalent
Variation.
Quantity equivalent
Variation.

19. Price compensation
Variation.
According to Hicks, it is maximum amount of money
that consumer will pay for the privilege of buying a
commodity at lower price.

20. Price equivalent
Variation.
It is nothing but the minimum sum, the consumer will
accept for forgoing the opportunity of buying at a lower
price.

21. Quantity compensation
Variation.
it is nothing but the maximum amount of money a
consumer will be willing to pay for the privilege of
buying a good at a lower price.

22. Quality equivalent
Variation.
It is nothing but the sum of money the consumer will accept
for forgoing the opportunity of buying the commodity of
buying the commodity at a lower price.

23. Practical utilityof consumer’s surplus.
Although incapable of precise measurement, the concept of consumer’s surplus has great
practical utility and theoretical importance.
Conjunctural importance
Public finance
Monopoly value
Value-in-exchange
and Value-in-use
Benefits from
international trades
Cost-benefit analysis

24. Conjunctural importance
It enables us to compare the
advantages of environment
and opportunities.it also
enables us to compare the
economic conditions of the
people at different times. The
larger the consumer’s surplus
the better off are the people.

25. Public finance
The concept has a great practical
importance to the government in
determining the desirability of imposing
a tax on a certain commodity. A tax
imposed on a commodity tends to raise
its price and to reduce consumer’s
surplus thereby, but it yields some
revenue to the government. The finance
minister is to compare the loss of
consumer’s surplus to the increase in
tax revenue. A tax is justified when the
loss in consumer’s surplus becomes less
than the increase in tax revenue;
otherwise it will be harmful to society.

26. Monopoly value
While practicing price
discrimination, a monopolist
may charge different prices
for the same commodity
from the different buyers
(i.e., higher prices from the
affluent buyers and lower
prices from others) in such a
way that none gets any
consumer’s surplus.

27. Value-in-exchange
and Value-in-use
Consumer’s surplus points to
the distinction between the
use value (i.e., utility) and the
exchange value (i.e., the
market price) of a thing. The
former is reflected in the
individual demand price and
the latter in the market price.
Hence, consumer’s surplus
shows that these two values
are not always equal.

28. Consumer’s surplus from
international transactions enables
us to compare the relative gains
from the international trade of the
different countries. Larger
consumer’s surplus from such
transactions enjoyed by a country
is likely to make its gains higher
than that of another country.
Benefits from
international trades

29. Cost-benefit analysis
The concept of consumer’s
surplus is found useful in
working out cost-benefit
analysis of an investment.
Cost benefit analysis is
considered very essential
for determining the
desirability or otherwise of
an investment expenditure
in a particular project.

31. Thank you !Thank you !