MGT405 Lecture Notes - Lecture 10: Economic Surplus, Marginal Utility, Perfect Competition
Document Summary
After having studied this lesson you should be able: to understand the concept of consumer surplus, to illustrate the measurement of consumer"s surplus, to list the limitations of consumer"s surplus. The concept of consumer"s surplus was evolved by alfred marshall. This concept occupies an important place not only in economic theory but also in economic policies of government and decision- making of monopolists. It has been seen that consumers generally are ready to pay more for the goods than they actually pay for them. This extra satisfaction which consumers get from their purchase of goods is called by marshall as consumer"s surplus. Thus consumer"s surplus = what a consumer is ready to pay - what he actually pays. The concept of consumer"s surplus is derived from the law of diminishing marginal utility. As we know from the law of diminishing marginal utility, the more of a thing we have, the lesser marginal utility it has.
