Friday, July 27, 2018

Gap between Willingness & Actual Pay

Consumer Surplus :-

The gap between the price what consumer willing to pay and what consumer actually pays is called consumer surplus.

Dupit originated the concept of consumer's surplus.

Consumer's surplus calculation :

Consumer's surplus =  Price × Quantity
                                   OR
CS = Price willing to pay – Actual price paid

Advantages of consumer's surplus :
1. Consumer surplus helps in taxation policy    
     and make it easy.
2. It helps in welfare economics.
3. Profit from International trade is measured   
    on the basis of consumer surplus.
4. It is useful in determining the price policy 
    of a monopoly firm.
5. It clarifies the contradiction of value.

Producer Surplus :-

Producer surplus is the price a firm receives for selling unit of a product minus the marginal cost of producing that unit.

Producer Surplus Calculation :

Producer surplus = Profit + Fixed cost
                                OR
Producer surplus = Total Revenue –
                                      (Total  cost – Fixed cost)

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