Published by: sadikshya
Published date: 28 Jun 2021
The Importance of consumer’s surplus can be explaining into the theoretical and practical 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 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.