What is consumer surplus? Using real-world data, what information would you need to measure consumer surplus for a product?

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Business

Foxy

26 April, 06:27

What is consumer surplus? Using real-world data, what information would you need to measure consumer surplus for a product?

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Ashanti Downs · Answer 1

Consumer surplus is a degree of welfare that people gain from consuming goods and services in a free market.

The informatio needed is the market price of the good or service, and the amount of good consumed. Is necessary too information about the demand curve.

Explanation:

In a free market are millions of consumers that has different preferences for good and services. Some of them are willing to pay more or less than the market price. The consumer surplus is the welfare produced by the lower price that consumers that are willing to pay more, actually pay.

For this analysis is required the demand function, the market price and the equilibrium quantities.

Example: if I love apples, and I'm willing to pay 5 dollars for a kilo, but in the fruit market the price of a kilo is 1 dollar, the market conditions offer a welfare situation where I pay less for something I actually value more.