Consumer’s Surplus 93
Consumer’s Surplus
A. Basic idea of consumer’s surplus
1. want a measure of how much a person is willing to
pay for something. How much a person is willing
to sacrifice of one thing to get something else.
2. price measures marginal willingness to pay, so add
up over all different outputs to get total willingness
to pay.
3. total benefit (or gross consumer’s surplus), net
consumer’s surplus, change in consumer’s surplus.
See Figure 14.1.
B. Discrete demand
1. remember that the reservation prices measure the
‘‘marginal utility’’
2.
r
1
=
v
(1)
v
(0)
,
r
2
=
v
(2)
v
(1)
,
r
3
=
v
(3)
v
(2)
, etc.
3. hence,
r
1
+
r
2
+
r
3
=
v
(3)
v
(0) =
v
(3)
(since
v
(0) = 0
)
4. this is just the total area under the demand curve.
5. in general to get the ‘‘net’’ utility, or net
consumer’s surplus, have to subtract the amount
that the consumer has to spend to get these benefits
