Consumer Surplus
Imagine you went to a small scale technology store in order to buy a VR headset. You checked the price online and found that the particular headset that costs around RS.1000. You went to the store determined to spend the same amount on the product but you were willing to bargain for a lower price if possible. After bargaining with the seller, you got that particular headset for Rs.700.
You are proud of your bargaining ability without realising the Economic principal related to this scenario.
This phenomenon is known as Consumer Surplus. Consumer surplus occurs when we pay an amount less than what we are willing to pay.
Consumer Surplus= Price consumer is willing to pay- Price actually paid for the product
In the above case, Let's find the consumer surplus.
The price you are willing to pay= Rs.1000
The price you actually paid= Rs.700
Therefore the Consumer Surplus is Rs.300(Rs.1000- Rs. 300)
Producer Surplus
When a Shoe reseller buys a shoe only for the sole purpose of selling them which costs around $200. The shoe is an exclusive piece so the reseller decides to sell the shoe for a price of $500 however, he sells the same for a price of $700 to a regular customer. Here the producer is making a surplus. This is known as Producer Surplus.
Producer Surplus= Price paid- Price willing to sell at
Here, The Surplus was $200.
Imagine you went to a small scale technology store in order to buy a VR headset. You checked the price online and found that the particular headset that costs around RS.1000. You went to the store determined to spend the same amount on the product but you were willing to bargain for a lower price if possible. After bargaining with the seller, you got that particular headset for Rs.700.
You are proud of your bargaining ability without realising the Economic principal related to this scenario.
This phenomenon is known as Consumer Surplus. Consumer surplus occurs when we pay an amount less than what we are willing to pay.
Consumer Surplus= Price consumer is willing to pay- Price actually paid for the product
In the above case, Let's find the consumer surplus.
The price you are willing to pay= Rs.1000
The price you actually paid= Rs.700
Therefore the Consumer Surplus is Rs.300(Rs.1000- Rs. 300)
Producer Surplus
When a Shoe reseller buys a shoe only for the sole purpose of selling them which costs around $200. The shoe is an exclusive piece so the reseller decides to sell the shoe for a price of $500 however, he sells the same for a price of $700 to a regular customer. Here the producer is making a surplus. This is known as Producer Surplus.
Producer Surplus= Price paid- Price willing to sell at
Here, The Surplus was $200.
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