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Consumer surplus can be defined as the difference between what the consumers are willing to pay for the consumption of a commodity and the actual price of that particular commodity. In any given market, there are acceptable prices for each and every item and the acceptable quantities. Consumers in certain situations tend to drive the price of the commodities high by creating the imprecation that they are willing to pay more above the competitive equilibrium. Traders have made use of this concept by either segmenting the markets in terms of the purchasing power and practice price discrimination where the consumers are charged differently. In a monopolistic market, the traders capitalize on reducing the consumer surplus to maximize their profits. For instance, consumers can be willing to pay $120 for a commodity valued at $100 thus the consumers surplus is $20 (Tajvan Pettinger, 2008).
Consumer surplus as a concept can be used alongside other concepts such as "Marginal Utility and Market Demand." In explaining the relationship between the concepts, marginal utility is the satisfaction that a consumer derives from the consumption...
A consumer's ability to purchase more units of a particular commodity can be influenced by the first consumption and the satisfaction attained. Where the consumption of additional units increases the total utility it is referred to as a positive marginal utility, while a decrease in the total utility caused by the consumption of additional units is referred to as the negative marginal utility. The satisfaction that consumers derive by consuming additional units of a commodity or service varies between individuals. On a general view, the more a commodity is consumed by an individual the more the utility decreases which explains the law of diminishing marginal utility where the pleasure derived from the consumption of the first unit of a service or a good decreases with the continued consumption of the additional units to a saturation point.
Market demand on the other hand is an economic tool that the traders are capable of…
References
Tajvan Pettinger, (2008). Definition of Consumer Surplus. Retrieved July 30, 2012 from http://www.economicshelp.org/blog/188/concepts/definition-of-consumer-surplus/
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