Question

explain the advantages and disadvantage of using economic surplus as a proxy for social utility

Answer 1

Ans: Economic surplus is the addition of the consumer surplus, which has been derived from the additional benefits derived from producers' leniency. her the producer some time sells the product at a lower price compare to its fixed price at that situation, the consumer feels better off. In general, the economic surplus is the combination of both consumer surplus and producer surplus. We can use the economic surplus as a proxy to the social utility, as it is adding benefit by providing the product at a low cost to the consumer by the producer. Now we are going to discuss the advantage and disadvantages of economic surplus.

Advantages:

1. It helps the small businessman to grow with economies and economic surplus.

2. if there is an economic surplus that shows the frequent flow of money to the company/business so the company can think of expanding its business.

3. A new dimension of product and services can be added to the company's production horizon.

4. The economic surplus will lead to greater investment in research and development.

5. it will increase the CSR activity of a company.

Disadvantages:

1. when there is a control level of the economic surplus it is good for the economy, but when the surplus is high then that will leads to a hike in price.

2. there is a lack of interest in further development as the company is satisfied with the given surplus.

3. There is a chance of hooding and creating an illusionary high price.

4. Economic surplus may behave like a loophole for the economic growth/social benefits.