Consumer surplus
The consumer surplus is in economics central part of welfare theory and allows together with the producer surplus, statements about the welfare effect of prices.
It is the difference between the market value of an asset ( market price) and value of the goods ( prohibitive ) and a key concept in the Financial Theory of the microeconomic modeling.
The consumer surplus (English: consumer surplus ) is by Jules Dupuit (1840 ) and Alfred Marshall ( 1890) the difference between the price the consumer is willing to pay for a commodity ( reservation price) and the equilibrium price that the consumer due to the must pay market conditions actually ( market price). The consumer surplus is offset by the producer surplus. Together, these are the essential building blocks for determining the economic welfare.
Alternative definitions
In other words it is the difference between the individual appreciation of a commodity and the market price and it measures how much individuals are made better overall because they can buy in the market goods.
Examples
Anna likes to eat bread. Even if the bread would be more expensive than is actually the case, they would still eat it. Probably less, but they would not be without it entirely. One might ask: What is it Anna "value" that they can consume bread in the quantity of her? Can this be expressed in euros and cents?
In order to determine the value of consumption of bread, one has to compare the situation with bread with the situation without bread. Suppose that the price of bread would be so high that Anna just dispense with the consumption of bread. This is defined as the situation in the absence of bread. Now, one can ask how Anna would evaluate the difference between the hypothetical situation without bread and the actual situation with bread in euros and cents. This amount is known as consumer surplus.
Each individual consumer rated the consumption of bread differently. In the following chart we can see the willingness to pay of each consumer.
Example: For an online auction a visitor discovers an object, for which he would be willing to pay 100 euros. He bought it already but for 75 euros - the pension for him, the customer is then 25 Euro.
The maximization of consumer surplus at the expense of the providers can counteract with the help of price or product differentiation, to turn the retirement of the consumer as much as possible to skim off, as by offering two product variants that are aimed respectively at different customer segments with different willingness to pay.
Example: A cinema offers tickets for students, teachers and professionals at different prices. Here an attempt is made to absorb the generally higher consumer surplus professional as well as possible.
Clearly, these considerations is also that the value of a commodity from the customer's perspective on its willingness to pay has to be measured, as this reflects its benefit from this good. From the perspective of the provider, the value of the goods on the other hand is calculated on the price obtainable. Value -enhancing strategies of marketing and supply chain management are therefore on the one hand directed to provide the greatest possible benefit to the customer and on the other hand the offer in such a way that the willingness to pay of the customer is exploited as much as possible ( Benefit-oriented price formation).
Calculation
One can determine the consumer surplus for individual consumers or for the entire market. In the lower graph the identification of individual consumer surplus by Anna is shown. Anna has a willingness to pay of € 5, but the equilibrium price is only € 4. Consequently, they obtained a consumer surplus of € 1 ( € 5 - € 4 = € 1). In the graph, this is indicated by the yellow area.
In the following, we consider the example under changed conditions. The equilibrium price is now at 3 €. Anna's consumer surplus will rise to € 2 ( € 5 - € 3 = 2 € ). Hans wins a consumer surplus of 1 € (4 € - € 3 = € 1). The yellow rectangle shows the consumer surplus of Anna, the green rectangle that of Hans. It is possible to add the consumer surplus of both people. Anna and Hans achieve a common consumer surplus in the amount of 3 € (2 € 1 € = € 3).
If all individual consumer surplus is added, one obtains a measure of the aggregate consumer surplus in a market. The blue area in the lower graph represents the aggregate consumer surplus
- Q: Quantity
- P: Reservation Price
- P *: equilibrium price
- Q *: equilibrium quantity
For this example, the consumer surplus is calculated as follows:
KR = (( € 6 - € 3) * 30 pieces) / 2 = 45 €
It is greatest when the conditions of perfect competition are given on the market.
Application
Due to the aggregate consumer surplus can be the total benefit that consumers obtain the purchase of goods in a market measure.
In conjunction with the producer surplus can costs and benefits of alternative market structures, and State interventions that change the behavior of consumers and firms in this market are valued.
The addition of aggregate consumer surplus and aggregate producer surplus is obtained as the sum of the welfare of society; referred to as " economic rent".
For clarification, we consider the introduction of a consumption tax. This is payable by each party. The question is what impact this survey on consumer surplus, producer surplus, and ultimately on the welfare.
The starting point is the following graph Represents the market equilibrium is at the equilibrium quantity q1 and the equilibrium price p1. A natural market equilibrium is Pareto- optimal, that is, the market is in a state in which no individual can be made better off without at the same time to ask another individual worse.
Due to the consumption tax, the supply curve shifts upward. It creates a new market equilibrium in q2 and p2. This means that the price has increased and decreased the amount.
As a result, the tax decreases both the consumer surplus and the producer surplus. Consumer surplus decreases because consumers have to pay a portion of the tax burden (the price has risen ) and because consumers consume less than in natural balance. The lost pensions are represented by the blue rectangle and the red triangle. The blue rectangle falls to the state as tax revenue, the red triangle is thereby completely lost. It is called the dead -weight-loss or loss of welfare.