Quantcast

Got Homework?

Connect with other students for help. It's a free community.

  • across
    MIT Grad Student
    Online now
  • laura*
    Helped 1,000 students
    Online now
  • Hero
    College Math Guru
    Online now

Here's the question you clicked on:

55 members online
  • 0 replying
  • 0 viewing

ipm1988

The basic definition of Consumer Surplus is that consumer surplus is basically the extra price which the consumer is willing to pay for a product over its original price asked by the seller now lets take an example I smoke and the price of one packet of cigarettes is Rs.110 and if I run out of cigarettes in the middle of the night then I go to a shop where they charge me Rs.140 for the same packet of the Cigarettes. Now according to the definition my Consumer Surplus would be Consumer Surplus = 140-110 = Rs 30 Is my conclusion right ?

  • 2 years ago
  • 2 years ago

  • This Question is Closed
  1. anjali_pant
    Best Response
    You've already chosen the best response.
    Medals 1

    Well I dont think so. It is so because , earlier your willingness to pay was 110 , but now since the price of cigarettes has risen up , you dont earn any consumer surplus. Had it been , say 80 , then CS=110-80. So first decide your willingness to pay , then see what you actually pay , and if your willingness to pay exceeds what you actually end up paying , then that amounts to Consumer Surplus.Pardon me , if my suggestion proves wrong.

    • 2 years ago
  2. ipm1988
    Best Response
    You've already chosen the best response.
    Medals 0

    @anjali_pant The price of cigarette has not risen up the same cigarette which I purchase from any tobacco shop costs me Rs.110 while in the night when I am out of cigarettes the only people who are selling cigarettes are the tea vendors who charge Rs. 140 for the same packet of cigarette which if I had purchased from tobacco shop would have costed me Rs.110

    • 2 years ago
  3. anjali_pant
    Best Response
    You've already chosen the best response.
    Medals 1

    Well I dont think it has any relevance with consumer surplus , then. When you talk about consumer surplus , you keep your reference stationary.Or even if you include some tea vendor , then you first have to decide your maximum willingness to pay. I'll give you one example: Say there is a one of a kind Ferrari that you would like and you are willing to pay $100,000 dollars for it, but you only end up paying $75,000. Your consumer surplus is $25,000. If the price of the goods (Ferrari) increases to $90,000, your consumer surplus is now $10,000. Now coming back to your case. You initially bought a cigarette packet from tobacco shop for Rs.110 , assume that is your maximum willingness to pay, or even if it is not , lets say it is Rs.120 , then you earn CS=Rs.10. Now in another shop , tea vendor , the same thing is available for Rs.140, if your max willingness to pay is 110, you will not earn CS, even if its Rs.120 , you'll not earn CS. Had it been Rs. 150 , you would have earned CS=10. So as I said earlier decide your max willingness to pay , see what you actually pay , then conclude how much surplus you earned.

    • 2 years ago
  4. ipm1988
    Best Response
    You've already chosen the best response.
    Medals 0

    @anjali_pant that makes more sense thanks

    • 2 years ago
    • Attachments:

See more questions >>>

Your question is ready. Sign up for free to start getting answers.

spraguer (Moderator)
5 → View Detailed Profile

is replying to Can someone tell me what button the professor is hitting...

23

  • Teamwork 19 Teammate
  • Problem Solving 19 Hero
  • You have blocked this person.
  • ✔ You're a fan Checking fan status...

Thanks for being so helpful in mathematics. If you are getting quality help, make sure you spread the word about OpenStudy.

This is the testimonial you wrote.
You haven't written a testimonial for Owlfred.