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Questions tagged [consumer-surplus]

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2 answers
51 views

Assuming a fall in price, does consumer surplus fall more with elastic or inelastic price elasticity of demand

I know that the total consumer surplus is higher for more inelastic P.E.D values, which makes intuitive sense: People would be willing to pay more than they actually do for inelastic goods e.g. a ...
3 votes
1 answer
114 views

Consumer surplus calculation

Suppose $P(Q) = 10-0.5Q$. If a firm is producing $q_1$ and $q_2$ units from its two different machines such that $Q = q_1 + q_2$, what is the consumer surplus at $(q_1, q_2)$? I think the consumer ...
3 votes
1 answer
122 views

Validity of asking about WTP (willingness-to-pay) when dealing with paid services

The question that I'm interested in is whether questions about WTP make any sense in a scenario where we are dealing with a paid service. To give it a little bit of context: consider Uber, for example....
3 votes
1 answer
54 views

How to measure changes in consumer surplus empirically?

I am familiar with various ways of measuring consumer surplus "on the blackboard" (Compensating Variation, Equivalent Variation and simply measuring from the ordinary demand curve). Im ...
0 votes
1 answer
48 views

Consumer surplus at equilibrium with WTP table

I should be grateful for a breakdown of the steps I should take into account. The answer is (D).
0 votes
0 answers
22 views

effect of tax imposition on consumer and supplier with a price ceiling

Use a supply and demand diagram, suppose there's a valid price ceiling, say at 2. Now we add a specific tax of 1, to suppliers, what is the new consumer surplus, producer surplus, and tax revenue? ...
1 vote
1 answer
151 views

A question on Intermediate Microeconomics: A Modern Approach 9ed by Hal Varian, Section 14.6 Quasilinear Utility

In this section, there are two parts which I do not quite understand. The first one is In general the price at which a consumer is willing to purchase some amount of good 1 will depend on how much ...
1 vote
3 answers
708 views

Upward sloping demand curves can’t exist!

How can upward sloping demand curves exist given that consumer surplus will always be negative? So, why would a person ever buy a positive quantity?
3 votes
1 answer
72 views

Consumer surplus definition

Varian defines consumer surplus at price $p = p_0$ as $\displaystyle CS(p_0) = \int_{p_0}^{p_\max} q(p) \ dp$ where $p_\max$ exists and $q(p_\max) = 0$. The other definition that I generally use is $\...
1 vote
1 answer
96 views

why is the slow down in economic growth creating inflation

Context: Currently, many central banks and authorities are implementing monetary policies to do monetary tightening in response to current inflation and expectations of even higher inflation in the ...
2 votes
2 answers
6k views

Why is EV<CV if the good is inferior?

Through the Slutsky equation I know that if the good is inferior the marshallian demand function is steeper than the hicksian demand but I cannot understand why the Compensating variation is higher ...
-3 votes
1 answer
107 views

Why is a contractor's profit considered a producer surplus instead of being complementary with marginal utility? [closed]

Do economists currently not view contractors as labor? I suggest producer surplus be exclusively exclusive material (for otherwise even mining and logging would not need withstand fixed-startup costs ...
2 votes
1 answer
11k views

Calculating Consumer Surplus Given Table

Can someone help me? The answer is supposed to be 36 but I have no idea how they got that answer. Can someone explain why consumer surplus is 36 in this instance? Thanks! Refer to Table below. If the ...
7 votes
2 answers
13k views

Consumer surplus in case of perfectly inelastic demand

How do we define consumer surplus in the case of perfectly inelastic demand? This question was inspired by the comments following this answer. For a graph of inelastic demand please also see the ...
-2 votes
1 answer
51 views

Curiousity about the accuracy of an example about consumer surplus

Consumer surplus is an economic measurement of consumer benefits. A consumer surplus happens when the price consumers pay for a product or service is less than the price they're willing to pay. It's a ...
4 votes
2 answers
369 views

What is the problem with this opportunity cost example?

The "stand-up economist" Yoram Bauman used the concept of opportunity cost to make the following joke: [S]omebody offers you a choice between a Snickers bar and a package of M&Ms. ...
2 votes
1 answer
323 views

consumer surplus decreasing

MRU has the following question on a quiz: Suppose the government forced all bread manufacturers to sell their products at a “fair price” that was half the current, free-market price. To keep it ...
0 votes
1 answer
46 views

Consumer Surplus [closed]

Is there a case where the consumer surplus being negative does not mean that the producer surplus increases? Is it true that as consumer surplus increases, producer surplus decreases and vice versa?
2 votes
1 answer
156 views

Dead Weight Loss (Tax)

Problem Given demand $D(p)=A-ap$, and $A,a>0$ and a fixed price $0<p_1<A/a$ by some company. My solution so far CS is $CS=\int_{p}^{A/a}D(p)dp=\int_{p}^{A/a}(A-ap)dp=\frac{1}{2a}(A-ap)^2=\...
3 votes
2 answers
704 views

Integral solution (or a simpler) to consumer surplus - What is wrong?

Problem Given demand $D(p)=A-ap$, and $A,a>0$ and a fixed price $0<p_1<A/a$ by some company. Calculate the consumer surplus and its derivative with respect to $p$. What is this number? My ...
0 votes
1 answer
38 views

Can individual consumers ever be price-makers, and can they thereby have major effects on welfare?

Suppose there's a big demand shock on some good X. As long as X has fairly standard supply and demand curves, that'll raise the price. And all of the buyers who would have bought at the lower price ...
1 vote
3 answers
7k views

What are the (immediate) effects of changing a good's price on consumer and producer surplus?

Basically, I'm trying to understand why the total surplus is maximized at the equilibrium and what happens if the price isn't at the equilibrium. Say the price of a good is the equilibrium price. ...
6 votes
2 answers
223 views

Does consumer surplus over-weigh the interests of high-income consumers?

An individual's willingness to pay for a good not only depends on how much they value that good, but also on their income level (at least under the conventional non-economics definition of the word '...
5 votes
1 answer
757 views

Is the consumer surplus on a Giffen/Veblen good negative?

When drawing the demand and supply curves on a quantity/product space for an upwards sloping demand, assuming the two curves intersect, I noticed that the traditional consumer surplus region lies ...
0 votes
1 answer
437 views

Numerical Question on a subsidized monopoly

Suppose a government agency has a monopoly in the provision of internet connections. The marginal cost of providing internet connections is $ \frac12$, whereas the inverse demand function is given by: ...
0 votes
1 answer
137 views

Does utility in economics also refer to producer's surplus ? How to balance the consumer surplus and producer surplus?

I am confused about the use of utility in economics and how it relates to allocative efficiency. At 4:35 and 5:07 in this video (https://www.youtube.com/watch?v=9a3wXj1o91k) he talks about how at the ...
2 votes
1 answer
2k views

Is the amount of tax that consumers pay the same as the amount producers pay?

I am confused about the amount of tax producers and consumers pay. On this diagram, I can see that the supply curve increases by twenty dollars, as the tax is 20 dollars. The consumers have to pay 10 ...
2 votes
1 answer
318 views

Real world evidence that voluntary exchange is mutually beneficial?

The other day I was having a debate with a supporter of high taxes. I decided to argue against this by explaining the concept of the deadweight loss of taxation. In order to do so, I started with ...
1 vote
2 answers
781 views

Why is consumer surplus the area under the curve?

So I understand that the definition of consumer surplus is the difference between what the consumer pays and what the consumer would have been willing to pay. I just don't understand why the consumer ...
1 vote
1 answer
13k views

Can consumer surplus be negative if a consumer is forced to make a purchase?

Assume there is a good that a producer sells for $100$. A consumer's willingness to pay for that good is $50$. However a government program forces consumers to purchase the good irrespective of their ...
3 votes
4 answers
896 views

what is consumer surplus practically?

In Microeconomics producer surplus is equivalent to profits minus fixed costs. However getting a tangible definition of consumer surplus has been difficult for me to ponder. What is the practical ...
1 vote
1 answer
437 views

Consumer surplus with isoelastic demand

Let $q(p) = \frac{1}{p}$ denote the demand function and $p^*$ some equilibrium price. Consumer surplus is defined as \begin{align} CS = \int_{p^*}^\infty\frac{1}{p} dp= \ln(\infty) - \ln(p^*) = \...
4 votes
1 answer
23k views

Equilibrium price and quantity - consumer and producer surplus

Inverse function of market demand for certain good is equal to $P=100-0.25Q$, inverse supply function is $P=20+0.55Q$. Calculate equilibrium price and quantity. Furthermore calculate consumer and ...
8 votes
3 answers
1k views

Can a monopoly INCREASE the market surplus compared with a competitive market?

Monopolies are often blamed for DWLs(Dead Weight Losses), while competitive markets believed to work without DWLs (assuming zero taxes/subsidies and zero externalities). But I think I found an ...
1 vote
0 answers
78 views

How big is the consumer surplus for typical consumer goods?

Economic transactions happen when both think it will benefit them - that is, when there are gains from trade on both sides. But that says nothing about the size of that gain. If you're a consumer, ...
6 votes
1 answer
3k views

Intuition for why $EV>CV$ for a normal good

I understand the mathematical proof and the graphical illustration behind this property ($EV>CV$ for the variation in the price of a normal good), but I still do not understand the economic ...
1 vote
0 answers
320 views

Consumer surplus from a Hicksian demand curve: what is it?

A Hicksian demand curve indicates how much of a good will be demanded given price holding level of overall utility fixed. When in equilibrium with a supply curve we end up with this area we would ...
5 votes
2 answers
217 views

Consumer behavior with constrained demand

Suppose there is a linear demand function $D(p)$ describing the demand of an individual consumer. This is derived from a utility function or is just observed, but let us assume it is correct. Now ...
3 votes
1 answer
495 views

Change in Consumer Surplus with Two Price Changes: Is it Path Dependent?

The diagrams below showing demand for goods X1 and X2 are adapted from Johansson P-O (1991) An Introduction to Modern Welfare Economics (p 43). Demand for each good is assumed to be a function of its ...
2 votes
1 answer
35 views

Issues with an application of definite internal and marginal utilities

I'm going to state the problem without much context because it is an issue of the math I'm doing, rather than any specific econ concept. Condition. I'm trying to prove this. $$ V(q_l) - \theta_l*q_l ...
1 vote
2 answers
10k views

consumer and producer surplus

So, I am trying to evaluate the consumer and producer surplus. In my notes it is written that the new consumer surplus (defined by the change of the graph from pre-subsidy to post-subsidy) is G + A + ...
-1 votes
1 answer
16k views

Calculate deadweight loss from cost and inverse demand function in monopoly [closed]

Consider a monopolist with inverse demand p = 200 - 2*q. The firm's total cost function is C(q) = 100 + 20*q. What is the deadweight loss of monopoly? To my understading, since we don't have any ...
1 vote
0 answers
513 views

Calculating a cross price substitution/income effect

I am given a utility function $U(x,y)$, income $I$ and prices $p_x,p_y$. Then the price of $y$ rises to $p_y' = 3 \cdot p_y$. How are we supposed to calculate the substitution effect and income effect ...
4 votes
1 answer
774 views

Subsidies Incidence on Producers and Consumers

When calculating the incidence on producers and consumers using a demand and supply curve is dead weight loss a part of the incidence? I know that for example the producer's incidence is a rectangle ...
3 votes
2 answers
98 views

Impact of a reduction of distortions in a flat consumption tax

I ask about the survey results of some prominent Australian economists shown here (Which is a similar Australian-centric version of the very interesting IGM Forum Surveys). The results of the survey ...
5 votes
1 answer
82 views

Evidence that open source production processes increase efficiency and/or consumer surplus?

Is there peer reviewed evidence that open source production processes increase efficiency and/or consumer surplus? It seems that the first theorem of welfare economics requires complete markets which ...
2 votes
2 answers
2k views

Consumer Surplus question

The demand for rail travel is $Q^d = 600 - 2P$ where quantity is thousands of train journeys per quarter and $P$ is in £ per journey. How much would the consumer surplus change if rising cost of ...
11 votes
3 answers
559 views

Price discrimination- how much is optimal?

I am of the understanding that as a general rule, price discrimination does not benefit consumers. Yet I can think of a situation where it does. Look at two countries, Australia and India. The price ...
4 votes
1 answer
114 views

Is there a class of demand functions that deliver equal surplus to consumers and a monopolist?

Consider a market with a monopolist firm that has zero marginal cost and faces demand $D(p;\mathbf{a})$, where $\mathbf{a}$ is a vector of parameters and $p$ is the price. The monopolist maximizes ...