Consumer surplus - what is this?

often for a particular product, we are willing to pay more than he is in fact, due to our natural needs and desires.Such our capabilities constitute a separate element in the structure of a healthy market, which we'll discuss later.

What consumers need?

is difficult to understand what constitutes the surplus of the consumer, if not fully understand the driving force of this phenomenon - demand.We all know from economic theory that the latter is the basis of market relations, because only through it is generated by the proposal, and, respectively, and the balance of the proposed circuit and consumed goods and services.

did not hesitate to declare that the market is driven by the consumer who, in turn, when choosing a purchase based on a number of factors.

Who would not say that, but the primary driving force of the actions of any customer - is particularly preferred.No one will ever acquire what he does not need, so everyone pushes their personal needs.

In the second stage, the buyer will maximize the usefulness and rationality of its acquisition, in other words, it brings your desires to the equilibrium terms of "price-quality".

Of course, there will not be without a comparison of their desires with their financial capabilities as, well, hence the next factor - the value of the goods or services in relation to the proposed substitute products from other manufacturers.

Now we can give the answer to the previous question: consumers need the goods corresponding to it as the conscious and subconscious criteria, which are based on conscious and unconscious factors.

As a consumer usually behave?

So we realized, based on what those or other actions of the buyer, but what does this look like in practice?It is obvious that a potential buyer may be interested in an identical item from several vendors at the same time, well after the purchase it only one or do not make a purchase at all.Why is this happening?

fact that often the buyer wants and needs are rational character, and each determines the usefulness of a purchase for themselves personally and for their family members.In addition, each member has the demand threshold of financial constraints, and if a particular product does not carry the essentials, there is hardly able to pay for it too high a price.

Often the consumer is looking for items at a lower cost, but this does not mean that it should be low-quality.From here you can run into a little ahead and noted that consumer surplus - the amount of money that represents the difference between the price the buyer was willing to pay, and that which in reality paid.In other words - I find an identical product at a lower cost of other vendors.

consumer and market

Do not forget that the consumer surplus represents the first element of a normal market, where there are also components such as supply and demand.

In accordance with the above information we can conclude that the desire and the ability of the buyer to purchase a particular product or service for a certain period of time and are a phenomenon of the demand.The latter depends on several factors: the socio-cultural and demographic indicators of the market, the level of income of the population, the quality of the offered goods, products, competitors, and its value.

in turn demand reacted to the proposal, which also depends on a variety of external socio-cultural factors, as well as internal.The latter include the expected level of consumption and the competitiveness of products in the market.

So what is it - the consumer surplus?

Well, here we are gradually getting to the key concepts of the article, around which can be said to develop a variety of causal market processes.So the consumer surplus - is all the money left in your pocket after a given acquisition, even though you were going to spend it.

We all know the basics of economic theory on the laws of a particular level of utility for the good of the unit of the population.For example, if you wanted an apple, and you bought a kilo, then each eaten fruit it helpful will decrease in the rate of negative arithmetic progression.

maximum that you can pay for one eaten apple, will be, for example, 5 rubles, while not forgetting that each units offer you the price will decline.In the market you also offer to buy the goods at 2 rubles per one fruit, and that's the difference between your total and the proposed price would be consumer surplus.More specific formula for calculating this indicator will be presented a little later.In the meantime, we shall understand what this phenomenon can affect.

How much profit can get the consumer?

should be noted that the surplus of the consumer - it is not only the amount of savings, it is primarily his own profit.For illustrative examples depict a graph as curve TU depict the constantly changing level of utility of our apple, well, indicator S will talk about material costs, direct q will indicate the amount of goods.We see that the maximum utility level coincides with the price only when a certain volume of demand (q0), and then the corner is on the decline, it said that the surplus of the consumer, from this point, grow.

Thus, we can conclude: the higher the indifference curve marked by a touch of the performance, the greater the income received by the buyer of the proposed transaction, and the funds it will be able to meet their other needs.

Consumer surplus on the background of the total market

So, we learned how the difference between the expected and the actual amount paid money for this or that product on the example of a particular consumer.And now let's see how can look at the aggregate surplus of the consumer market.The graph below, the vertical axis indicates the price of our apples (P), and the horizontal - the number (Q).This mark indicates the level of F0 common market prices for fruit on average.

By analogy draws utility curve along the axis of the prices (for each individual user, they will be) and is defined as the shaded figure income each customer.

The graphic image, everything is simple and clear - there is a certain figure, and it is desired figure, but how to find the consumer surplus?The formula is pretty simple: we need to calculate the area of ‚Äč‚Äčeach figure, well after summarize the figures obtained.The final figure will be the total profit of buyers in the market as a whole apples.

consumer and producer surplus

If we are talking about behavioral factors buyer, it would not be appropriate not to recall some points behavioral factors seller.Do not forget that the consumer and producer surplus - related indicators and are not afraid to note interdependent.The latter refers to the difference between that amount of money that the seller had planned to get out of the deal, and actually proceeds.

The graph below indicates the straight line D at a price the buyer is willing to pay, and a direct S indicates the value offered by the manufacturer.At a certain point they intersect (the deal is), well shaded triangles (top and bottom, respectively) indicate that the resulting consumer benefits and costs of the so-called Great Expectations seller.

How to achieve market equilibrium?

Why is it that for any prospective buyer and seller requests they still meet at a certain price and a quantitative point, to make a deal?In this case, everybody is happy - someone got revenues, well, someone has to meet their needs, and sometimes, if it allows the budget plan, it still may have a surplus of the consumer, which is also a nice bonus, because money is left!

All this is for the reason that our resilient market, in other words, any sensitive demand relative to supply, product quality and value.Thus we can say that the purchasing power of much more elastic and adaptable to changes in external factors, much faster than the ability of the seller.

Therefore, if the apples once rise, the demand for some time to fall slightly, but later restored, but if the tax policy regarding the purchase of apples will be different from the manufacturer to ensure that its trading gain momentum, which will require more time.

consumer surplus and the state

Sometimes it happens that the state intervenes in the process of pricing (often in countries with a planned economy mode), and sets a threshold value of the goods.The chart (See below.) As the line P1 contains the set limit of the government which is below the equilibrium.In this case, of course, the consumer would profit where above the same, but there may be shortage of goods, which are graphically depicted in interval Q1 - Q2.

Hence the conclusion that any interference of a third force entails a reduction in the welfare of the population, since some part of it will be left without the goods.Therefore, the market process should be the result of interaction between the buyer and seller in a healthy competitive environment, and nothing more.