The Basic Concept
Consumer Surplus
• A consumer gets
benefit from each unit
purchased.
• However each unit
brings less benefit
$60
60
50
$40
40
30
20
10
0
Lectures in Microeconomics-Charles W. Upton
The Basic Concept
• A consumer gets
benefit from each unit
purchased.
• However each unit
brings less benefit
• A consumer purchases
until marginal benefit
equals price
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Consumer Surplus
The Basic Concept
• A consumer purchases
until marginal benefit
equals price
• If the price rose to
$20, the consumer
would demand fewer
units.
60
50
40
30
20
10
50
40
30
20
10
0
0
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Consumer Surplus
The Basic Concept
• Effectively we have a
demand curve.
60
1 2 3 4 5 6 7 8 9 10 11 12
Consumer Surplus
The Basic Concept
• Effectively we have a
demand curve.
60
60
50
50
40
40
30
30
20
20
10
10
0
0
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Consumer Surplus
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Consumer Surplus
1
The Basic Concept
• How do we compute
the total benefit or
consumer surplus the
consumer gets from
his purchases?
The Basic Concept
• We could sum up the
benefits from each
unit purchased.
60
50
CS = 50 + 45+…
40
50
40
30
30
20
20
10
10
0
0
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1 2 3 4 5 6 7 8 9 10 11 12
Consumer Surplus
The Basic Concept
• We could sum up the
benefits from each
unit purchased.
• We could simply find
the area under the
demand curve
60
Consumer Surplus
Computing Consumer Surplus
• This is the standard
way of computing
consumer surplus.
60
50
40
30
20
10
0
1 2 3 4 5 6 7 8 9 10 11 12
Consumer Surplus
Computing Consumer Surplus
• This is the standard
way of computing
consumer surplus
• Look at the demand
function. A consumer
purchases Qo units, to
the point where MB =
Price
Consumer Surplus
Qo
Consumer Surplus
Qo
Computing Consumer Surplus
• This is the standard
way of computing
consumer surplus
• Look at the demand
function. A consumer
purchases Qo units, to
the point where MB =
Price
• Consumer surplus is
then the shaded area
Consumer Surplus
Qo
2
Computing Consumer Surplus
• This computation is
easy. Remember the
basic formula for the
area of a right triangle:
Area =
• This computation is
easy. Remember the
basic formula for the
area of a right triangle:
1
( Base)( Height )
2
Consumer Surplus
Area =
1
( Base)( Height )
2
Qo
Computing Consumer Surplus
Consumer Surplus
1
( Base)( Height )
2
Consumer Surplus
Qo
Consumer Surplus
80
A Numerical Example
Q = 100 – 2p
When
P = 10
Q = 80
Base = 80
50
10
Consumer Surplus
50
10
A Numerical Example
Q = 100 – 2p
When
P = 10
Q = 80
Qo
A Numerical Example
Q = 100 – 2p
• This computation is
easy. Remember the
basic formula for the
area of a right triangle:
Area =
Computing Consumer Surplus
80
50
10
Consumer Surplus
80
3
A Numerical Example
Q = 100 – 2p
When
P = 10
Q = 80
Height = 40
A Numerical Example
Q = 100 – 2p
50
When
1
1
= 10 )( Height ) = (80)(40) = 1600
Area = P( Base
2Q = 80
2
Base =80
10
Height = 40
50
10
80
Consumer Surplus
An Application
• The Demand for a
particular product is
shown on the graph.
An Application
• The Demand for a
particular product is
shown on the graph.
• The good sells for p
D
P
Q
An Application
Q
Consumer Surplus
An Application
• The Demand for a
particular product is
shown on the graph.
• The good sells for p
• Compute consumer
surplus
D
P
Consumer Surplus
D
P
Consumer Surplus
• The Demand for a
particular product is
shown on the graph.
• The good sells for p
• Compute consumer
surplus
80
Consumer Surplus
Q
D
P
Consumer Surplus
Q
4
No Right Triangle?
No Right Triangle?
D
D
P
P
Q
Q
Consumer Surplus
Consumer Surplus
No Intersection
No Intersection
Is there such a demand
curve?
D
D
And, if there is, mathematicians
can sometimes find the area.
P
P
We won’t
worry about these
special cases.
Q
Q
Consumer Surplus
Consumer Surplus
An Application
End
• TheComputing
Demand for a consumer surplus is
particular product issimple.
D
shown on the graph.
• The good
for p
It issells
a powerful
concept, with
• Compute consumer
major applications.
surplus
©2003 Charles
W. Upton
P
Consumer Surplus
Q
Consumer Surplus
5