1. CONSUMER SURPLUS & ITS OPERATIONAL SIGNIFICANCE
UNIT - 9
CONSUMER SURPLUS
&
ITS
OPERATIONAL SIGNIFICANCE

2. UTILITY:
The satisfaction which a consumer gets by having goods & services.
TOTAL UTILITY:
The sum total of satisfaction which a consumer receives by consuming the various units of goods & services.
MARGINAL UTILITY:
It is defined as the change in total utility resulting from one unit change in the consumption of the goods.
THE LAW OF DIMINISHING MARGINAL UTILITY
THE LAW OF EQUI – MARGINAL UTILITY

3. CONSUMER SURPLUS :
It is the satisfaction enjoyed by a consumer over and above the price he is paying for the product.
In other words, the excess of price which a person whould be willing to pay rather than go without the thing over which what he actually does pay is the economic measure of surplus satisfaction.
Consumer surplus = what we are prepared to pay – what we actually pay

4. Units of goods purchased Consumers’ surplus in units
MU of a commodity
Consumers’ surplus in units
Price per unit
Total units Total utility from Total price paid for consumer surplus
purchased = units = units = = 50 units

5. OPERATIONAL SIGNIFICANCE
Conjectural advantages
Use in cost – benefit analysis
Use in public finance
Pricing of public utilities
Use in monopoly pricing
Use in international trade
Use in introduction of new product

6. PRODUCERS’ SURPLUS
It is defined as the excess or surplus income received by a seller over above the price at which he is willing to sell a product.
Producers’ surplus = what the seller is actually receiving – what the seller is ready to receive

7. Price at which actually sold Producers’ surplus in units
Units of goods sold
Price at which actually sold
Producers’ surplus in units
Price at which ready to sell
Total units Total price Total price expected producers surplus
sold = received from units = = 50 units
units = 75

8. EMERGENCE OF CONSUMERS’ SURPLUS & PRODUCERS’ SURPLUS
Vivek is a seller and ready to sell his CD at Rs. 20
Vivek now sell the CD at Rs.30
Anshoo is ready to pay Rs. 40
Anshoo now buy the CD at Rs. 30