Question

Quote an example where you noticed consumer surplus. What did you think about the phenomenon at that time and how do you look at it after understanding the concept of consumer surplus.

Answer 1

• Consumer surplus can be defined as the difference between customer's willingness to pay and his ability to pay (that is the paid price or equilibrium price).
• Consumer surplus is positive when the customer's willingness to pay is more than the existing market price. Otherwise it is said to be having a negative consumer surplus.
• Real life example of consumer surplus can be easily seen during end of season sales. Let's consider a fabric or clothing of our choice which is of a popular brand. By seeing and liking a particular dress, we will be interested in buying it.
• On seeing the price tag, we often get surprised as we get more offer on the price than we expected. Even if it had costed the actual price, we will be willing to buy that product. When getting the product with half price or with some discount, the consumer will be more satisfied. Thus, consumer surplus occurs.
• Seeing the price tag with more price than we had expected is also an example of consumer surplus. There negative consumer surplus happens as the willingness to pay is less than what is actually paid.
• When the demand curve is inelastic, consumer surplus is infinite. For perfectly elastic demand curve, the consumer surplus will be zero.
• Along with consumption, consumer surplus generally declines. For example, a thirsty person will be in need of a bottle of water. For the first bottle of water he is buying will be having more consumer surplus than the second bottle he is buying. Thus consumer surplus gradually declines as the consumption progresses.