1. INTRODUCTION
1.1. CONSUMER SURPLUS
Consumer surplus is an economic measure of consumer satisfaction, which is derived by analyzing the difference between what consumers are willing to pay for a good or service, relative to its market price. When the consumer is willing to pay more for a given product than the current market price, consumer surplus concept occurs. This is not a tangible surplus.
For example, if you are in need of some computer accessories and your budget would be Rs. 15,000 to purchase but when you reach the store and find out that to get the accessories you require only Rs. 12,000, then the consumer surplus would be Rs. 3,000 (marginal benefit). Which means you spent Rs. 3,000 less than your budget.
1.2. PRODUCER SURPLUS …show more content…
Post-purchase behavior:
A CASE STUDY
It takes Andrew about 2 hours every day on public transport to go to office but he noted that by car it would only take in about 30 minutes. He will have the buying behavior to purchase the car even if the price is important, he start understanding the importance of the need for a car.
He then starts collecting the information after several research, he makes up his mind to buy one specific brand, for instance Maruti Suzuki based on his budget and purchases the vehicle. In the post-purchase stage, he the measures or estimate the performance of the car against the expectations he had before buying the car. In this stage, Andrew is either satisfied or dissatisfied.
2.4. CONSUMER BEHAVIOUR AND UTILITY THEORY
2.4.1. Law of Diminishing Marginal Utility
This is the additional satisfaction a consumer gets by buying an additional unit. A good example to explain this would be if you go to a coffee shop to drink a cup of coffee. The price of a cup of coffee is
3. CONSUMER SURPLUS, PRODUCER SURPLUS & ELASTICITY
3.1. DEMAND CURVE Price
Consumer surplus Rs.900 Market …show more content…
CONSUMER SURPLUS AND PRICE ELASTICITY OF DEMAND
• For a fixed demand (inelastic) i.e. with the change in price, demand does not change. In this scenario, there is higher capacity for consumer surplus as there are consumers who are ready to pay a higher price to consume that product.
• Consumer surplus is zero when the demand for a good is perfectly elastic, with the increase in price, the demand decreases thus reducing the consumer surplus.
• When the demand curve shifts, it affects the market price and the quantity which eventually leads to a change in consumer surplus.
3.3. SUPPLY CURVE Price
Producer surplus Market price Rs. 1,500 Rs. 1,000
Quantity
• A cupboard furniture manufacturing firm is willing to sell a cupboard for Rs. 1,000 each. A consumer is ready to buy the same product for Rs. 1,500. The producer makes a profit by selling the product more than the market price. The producer surplus would be Rs 1,500 – Rs. 1,000 = Rs.
1.1. CONSUMER SURPLUS
Consumer surplus is an economic measure of consumer satisfaction, which is derived by analyzing the difference between what consumers are willing to pay for a good or service, relative to its market price. When the consumer is willing to pay more for a given product than the current market price, consumer surplus concept occurs. This is not a tangible surplus.
For example, if you are in need of some computer accessories and your budget would be Rs. 15,000 to purchase but when you reach the store and find out that to get the accessories you require only Rs. 12,000, then the consumer surplus would be Rs. 3,000 (marginal benefit). Which means you spent Rs. 3,000 less than your budget.
1.2. PRODUCER SURPLUS …show more content…
Post-purchase behavior:
A CASE STUDY
It takes Andrew about 2 hours every day on public transport to go to office but he noted that by car it would only take in about 30 minutes. He will have the buying behavior to purchase the car even if the price is important, he start understanding the importance of the need for a car.
He then starts collecting the information after several research, he makes up his mind to buy one specific brand, for instance Maruti Suzuki based on his budget and purchases the vehicle. In the post-purchase stage, he the measures or estimate the performance of the car against the expectations he had before buying the car. In this stage, Andrew is either satisfied or dissatisfied.
2.4. CONSUMER BEHAVIOUR AND UTILITY THEORY
2.4.1. Law of Diminishing Marginal Utility
This is the additional satisfaction a consumer gets by buying an additional unit. A good example to explain this would be if you go to a coffee shop to drink a cup of coffee. The price of a cup of coffee is
3. CONSUMER SURPLUS, PRODUCER SURPLUS & ELASTICITY
3.1. DEMAND CURVE Price
Consumer surplus Rs.900 Market …show more content…
CONSUMER SURPLUS AND PRICE ELASTICITY OF DEMAND
• For a fixed demand (inelastic) i.e. with the change in price, demand does not change. In this scenario, there is higher capacity for consumer surplus as there are consumers who are ready to pay a higher price to consume that product.
• Consumer surplus is zero when the demand for a good is perfectly elastic, with the increase in price, the demand decreases thus reducing the consumer surplus.
• When the demand curve shifts, it affects the market price and the quantity which eventually leads to a change in consumer surplus.
3.3. SUPPLY CURVE Price
Producer surplus Market price Rs. 1,500 Rs. 1,000
Quantity
• A cupboard furniture manufacturing firm is willing to sell a cupboard for Rs. 1,000 each. A consumer is ready to buy the same product for Rs. 1,500. The producer makes a profit by selling the product more than the market price. The producer surplus would be Rs 1,500 – Rs. 1,000 = Rs.