Glamor Economics

Chapter 45

Chapter 6 Section 8 Why Are You Happy When You Buy Expensive——Consumer Surplus

Consumer surplus is the difference between the price consumers are willing to pay and the price they actually pay for a commodity.In Western economics, this concept was proposed by Marshall, who defined consumer surplus in "Principles of Economics": "The price a person pays for a thing will never exceed, and and seldom reaches the price at which he would rather pay than not have it. The satisfaction he derives from buying it, therefore, usually exceeds the satisfaction he forgoes by paying the price for it, so that he derives from this The surplus obtained in the purchase is a kind of satisfaction. He would rather pay than not get the price. The part that exceeds the price he actually pays is the economic measure of this surplus satisfaction. This part can be called consumer surplus. "

The highest price consumers are willing to pay is not necessarily equal to the market price determined by both supply and demand.Consumer surplus can be expressed by the following formula:
Consumer surplus = buyer's evaluation - buyer's actual payment
For example:

At a small auction commemorating Elvis Presley, an out-of-print Elvis Presley album was auctioned, and four Elvis Presley fans Xiao Qin, Xiao Wen, Lao Li, and A Jun appeared at the same time.Each of them wants to own the album, but there is a limit to how much each is willing to pay for it.Xiao Qin's willingness to pay is 100 yuan, Xiao Wen's is 80 yuan, Lao Li is willing to pay 70 yuan, and Ah Jun only wants 50 yuan.

The auction started, and the auctioneer first set the minimum price at 20 yuan and began to bid.Since everyone wanted the album very badly, and everyone was willing to pay much more than 20 yuan, the price quickly rose.When the price reached 50 yuan, Ah Jun no longer participated in the auction.When the price of the album was raised to 70 yuan again, Lao Li withdrew from the auction.Finally, when Xiaoqin was willing to pay 81 yuan, the auction ended, because Xiaowen was unwilling to pay more than 80 yuan for the album.

So, what benefits does Xiao Qin get from this album?In fact, Xiao Qin was willing to pay 100 yuan for this album, but he only paid 81 yuan for it in the end, saving 19 yuan more than expected.

The saved 19 yuan is Xiaoqin's consumer surplus.Generally speaking, when buying a commodity, each buyer hopes to buy the commodity at a price lower than his willingness to pay, and refuses to buy the commodity at a price higher than his willingness to pay.

Consumers have a subjective evaluation of the purchased items when shopping.This subjective evaluation is expressed as the highest price he is willing to pay for this item, that is, the demand price.There are two main factors that determine the price of this demand: one is the level of consumer satisfaction, that is, the size of utility; the other is the comparison with the utility and price brought by other similar items.

In daily life, consumer surplus can be used to measure the size of economic welfare that consumers get from purchasing and consuming certain goods or services.Consumers buy and consume goods or services in order to obtain economic welfare. The greater the consumer surplus that a kind of goods or services bring to consumers, that is, the lower the market price is than the maximum price consumers are willing to pay, the more consumers are willing to pay. On the contrary, if the market price is higher than the highest price consumers are willing to pay, then consumers will think that it is not worth buying the goods or services, or if the consumer surplus is negative, then consumers will not buy.

In a market economy, in order to make more profits for themselves, many merchants will try their best to make the surplus to consumers a positive number, so they adopt a sales strategy of small profits but quick turnover to attract more consumers to buy products .

[links to related words]

Consumer surplus is the difference between the price a consumer is willing to pay for a good and the actual price he pays for that good.

Producer surplus is the price a seller receives for a good or service minus the seller's cost.If the cost of a film company to provide a movie is 5 yuan, and the ticket price is 20 yuan, then the producer surplus is 15 yuan.Producer surplus measures the extra benefit received by producers.

Total surplus is the sum of consumer surplus and producer surplus.

(End of this chapter)