Consumer surplus
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Consumer surplus is a measure of consumer welfare that represents the difference between what consumers are willing to pay for a good or service and what they actually pay. Consumer surplus is represented by the area under the demand curve and above the market price. An increase in supply costs leads to higher market prices and a reduction in consumer surplus, while an increase in market demand causes consumer surplus to rise. When demand is inelastic, consumer surplus is greater because some buyers are willing to pay high prices, but when demand is perfectly elastic, consumer surplus is zero as the price paid equals willingness to pay.
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- Terms of trade measures the price of a country's exports relative to its imports. It is calculated as the index of export prices divided by the index of import prices.
- Types of terms of trade include net barter, gross barter, income, single factorial, double factorial, real cost, and utility terms of trade. Each type has strengths and limitations in measuring trade.
- Factors influencing terms of trade include the elasticity of demand and supply for exports and imports, as well as the relative size of demand for exports and imports. Changes in terms of trade can impact standards of living, import prices, and a country's balance of payments.
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Consumer surplus
- 1. Consumer surplus is a measure of the welfare that people gain from consuming goods and services.. Presentation By- Mitali Soni (IM-2K15-59)
- 2. Consumer surplus is the difference between the total amount that consumers are willing and able to pay for a good or service (indicated by the demand curve) and the total amount that they actually do pay (i.e. the market price). Consumer surplus is indicated by the area under the demand curve and above the price Quantity Price Consumer surplus = area ABC A Demand B c Q1
- 3. The Level of Consumer Surplus changes as the market price for a good or services changes… How ??
- 4. Higher supply cost leads to rise in market prices and a fall in consumer surplus from ABC to DBE. Price B D A E C S2 S1 Q1Q2 Quantity Demand
- 5. An increase in market demand causes consumer surplus to rise from area ABC to area GHI Price Quantity Demand D2 S1 I C H B G A Q1 Q2
- 6. How is consumer surplus affected by the elasticity of a demand curve?
- 7. When demand is inelastic there is a greater consumer surplus because there are some buyers willing to pay a high price to continue consuming the product. Quantity Price A supply Demand
- 8. When the demand for a good or service is perfectly elastic, consumer surplus is zero because the price that people pay matches exactly what they are willing to pay. Quantity Supply Demand Price A B C