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what is consumer surplus practically?

It is better to think of it as a "saving" rather than as a"surplus". Also, it is better understood if we imagine heterogeneous consumers for whom a threshold price exists, a "maximum willingness to ...
Alecos Papadopoulos's user avatar
6 votes

consumer and producer surplus

TL;DR version: "the tunnel" and D+A+B have exactly the same area. You are right to say that post-subsidy producer surplus is equal to the blue area in the following figure: However, it turns out ...
Ubiquitous's user avatar
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5 votes
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Is the consumer surplus on a Giffen/Veblen good negative?

Actually, neither demand for Veblen good nor for Giffen good is strictly increasing in price. In case of Giffen good the demand actually looks as shown below in picture 1. The reason for this is that ...
1muflon1's user avatar
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5 votes
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Integral solution (or a simpler) to consumer surplus - What is wrong?

Your calculation is correct. We can doublecheck your work with a graphical approach. As shown in the figure below, $CS$ at some arbitrary and not necessarily equilibrium price $p_0$ is the gray-shaded ...
Herr K.'s user avatar
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5 votes

Upward sloping demand curves can’t exist!

Upward sloping demand curves are rare but they can exist for a class of a good that is called Giffen good. Upward sloping demand can exist because price of a good or service has two effects: ...
1muflon1's user avatar
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4 votes
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Consumer behavior with constrained demand

In a two-good space, initially the consumer maximizes $U(x,z)\;\; s.t. \;\;p_xx+p_zz =I$ and we assume it obtains the solution $(x^*, z^*)$ as a function of prices and income. In the constrained ...
Alecos Papadopoulos's user avatar
4 votes

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

Under standard assumptions (some of which you state in your question: no externalities, etc.), no. This follows from the First Welfare Theorem. Perhaps there are departures from standard models that ...
Theoretical Economist's user avatar
4 votes
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Why is consumer surplus the area under the curve?

This is quite fundamental, so I'd encourage you to look up your textbook as well... but here's a short explanation. Imagine that there are $n$ consumers in the market. You sort them by their ...
Art's user avatar
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3 votes
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Can individual consumers ever be price-makers, and can they thereby have major effects on welfare?

Answer to the Question on Welfare The welfare analysis is not as simple as that. First, let us set aside for a second any inequality considerations (we can add them on later but there are some ...
1muflon1's user avatar
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3 votes

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

Although your question is already answered, I am just adding a small interesting detail that might help from doing some math (especially if the demand function is rather complex): See that (for any ...
Dayne's user avatar
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3 votes
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Can consumer surplus be negative if a consumer is forced to make a purchase?

Consumer surplus is their willingness to pay minus the price they pay, and producer surplus is the price they receive minus their willingness to receive. So if you are assuming that consumers are ...
Regio's user avatar
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3 votes

Consumer behavior with constrained demand

It appears that the consumer faces an exogenous additional constraint in her optimization problem, which restricts the feasible set for the good in question, say $x$. We take this for granted: the ...
Alecos Papadopoulos's user avatar
3 votes
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Issues with an application of definite internal and marginal utilities

The mistake you are making appears to be treating $\theta_i$ as a variable while in reality it is a specific value of the derivative. So $$\int_0^{q_i} V'(q)dq = \int_0^{q_i} \theta_i dq \;\;\; i=l,...
Alecos Papadopoulos's user avatar
3 votes
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consumer surplus decreasing

The MU question you quote is poorly worded. Here the proper answer would be: C Indeterminate with the given information First we can visualize it as shown on the ...
1muflon1's user avatar
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3 votes

Upward sloping demand curves can’t exist!

Becker, G. S. (1991). A note on restaurant pricing and other examples of social influences on price. JPE.
Alalalalaki's user avatar
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3 votes

Upward sloping demand curves can’t exist!

Consider the following (non-standard) utility maximisation problem : \begin{eqnarray*} \max_{x, y} \ & x^{p^2}y \\ \text{s.t.} \ & px+y\leq M\end{eqnarray*} Here, $0 < p < 1$ is the ...
Amit's user avatar
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2 votes
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Calculate deadweight loss from cost and inverse demand function in monopoly

I'm going to give you the intuition behind this exercise, so you can solve it for your own. The definition of deadweight loss is the following: In economics, a deadweight loss is a loss of economic ...
ChicagoCubs's user avatar
2 votes
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Change in Consumer Surplus with Two Price Changes: Is it Path Dependent?

Your reasoning is correct (i.e. the book is wrong). First, let's follow the book's logic a little more carefully step by step, beginning with the case where p1 changes first: a fall in p1 leads to a ...
Ubiquitous's user avatar
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2 votes

Why is EV<CV if the good is inferior?

I believe Marshallian demands are less steep than Hicksian demands because we reverse the y and x axis in economics. Thus a larger derivative of x with respect to p will be less steep since p is on ...
MHall's user avatar
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2 votes

Consumer Surplus

Consider two situations: (i) a price so high that no consumer buys a good, (ii) the market price at which supply and demand are equal. CS=PS=0 in situation (i) and CS>0 and PS>0 in situation (ii)...
Bayesian's user avatar
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2 votes

Calculating Consumer Surplus Given Table

The key to this is in the hint. It lets you know supply and demand are both linear, so you need to figure out what the functions of those two curves are. In this case, you have $$ Q_D = 18 - 1.5P $$ $$...
Amaan M's user avatar
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2 votes

Dead Weight Loss (Tax)

I think you are making it unnecessarily hard for yourself. You can calculate the deadweight loss (DWL) simply as the difference between consumer surplus pre-tax and post tax, and also by adding tax ...
1muflon1's user avatar
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2 votes
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Is the amount of tax that consumers pay the same as the amount producers pay?

Tax is payed by the party it’s levied on, but I think your question is about tax burden and loss of consumer/producer surplus. In this case both producers and consumers loose the same amount of ...
1muflon1's user avatar
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2 votes
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Real world evidence that voluntary exchange is mutually beneficial?

First of all, there is no need to believe any economic dogma. The real world is usually more complicated than these stories. If anyone can convince me of something with a two minute anecdote, that was ...
Giskard's user avatar
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2 votes

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

What is CS and PS out-of-equilibrium at $P=30$: I think that answer to this question lies in misunderstanding the definition's of consumer and producer surplus. The consumer and producer surplus are ...
1muflon1's user avatar
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2 votes

What is the problem with this opportunity cost example?

First of all its all just joke so you should not read too much into it. Most jokes are based on some false/overly simplified premise. You are right: There are two problematic claims here: Being ...
1muflon1's user avatar
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2 votes
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What is the problem with this opportunity cost example?

The joke is conflating the value of the item you get and the value of the option to determine which item you get. Suppose I value the Snickers at $\\\$.4$ and the M&Ms at $\\\$.75$. If I am ...
Giskard's user avatar
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1 vote

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

Consumer surplus in Microeconomics 101 is indeed often used in the way you describe and to illustrate a point about the allocation efficiency of a free market. However, it is important to keep in ...
BB King's user avatar
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1 vote
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Does utility in economics also refer to producer's surplus ? How to balance the consumer surplus and producer surplus?

Utility is not the same as consumer surplus. Consumer surplus is the difference between price an individuals pay and their individual reservation price. Utility is a measure of gratification that ...
1muflon1's user avatar
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