Importance of Consumer’s Surplus

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Importance of Consumer’s Surplus

Published by: sadikshya

Published date: 28 Jun 2021

Importance of Consumer’s Surplus in Grade 12

Importance of Consumer’s Surplus

The Importance of consumer’s surplus can be explaining into the theoretical and practical importance.

  • Theoretical importance
  • Practical importance

Theoretical importance

The theoretical importance of the concept of consumer surplus is considerable because it tells us that the value in the use of a particular commodity is more than its value in exchange.

Practical importance

There is the various practical importance of consumer’s surplus. They are as follows.

  • In a comparison of levels of living standards in different areas.
  • In international trade
  • In the pricing of public goods
  • In evaluating the effect of taxes
  • In evaluating the effect of a subsidy
  • Index of the welfare of the communityIn a comparison of levels of living standards in different areas.
    This concept helps us to compare the standard of living of the people between two different times and places. Higher the consumer’s surplus the higher will be the standard of living and vice-versa.

    In international trade
    With this concept’s in effect consumers compare the prices of goods produce in different countries, they can choose to buy cheaper international products which would otherwise be expensed in the country.

    In the pricing of public goods
    The concept of consumer surplus is originated in the pricing of such public goods as a river bridge, railway communication, electricity’s, etc. so public vitality concern with discrimination between various users of such services. According to the amount of consumer surplus they derived and the price in fix accordingly.

    In evaluating the effect of taxes
    Welfare economist uses the concept of consumer’s surplus to evaluate the effect of a tax. A tax on goods raises its price and reduces consumer’s surplus but it brings revenue to the state.

    In evaluating the effect of a subsidy
    The subsidy is monetary helps given by the government to a particular industry. It also has two effects firstly, it means financial Borden on the government and secondly, it means a gain of satisfaction to the consumer’s government provides a subsidy for these goods and which consumer’s surplus less or non-consumer surplus.

    Index of the welfare of the community
    Consumer surplus is considered as the index of the welfare of the community. The level of economic development and economic wellbeing of the people is considered to be higher in those countries where the consumer surplus is more.