Download Consumer Surplus Note

CIA 4U1
Chapter 2: Supply and Demand
Mr. Raposo
Everyone Loves a Bargain: Calculating Consumer
Surplus (p.82-85)
PRICE ($ per
Pizza)
0
Quantity
The above table shows Mr. R’s demand for pizza. His demand curve shows the highest
price he is willing to pay for each pizza. He is willing to pay $12 for his first pizza slice
of the week, $6 for the second and $3 for the third. However, the price of a pizza slice is
actually $3 and Mr. R eats 3 slices per week (the quantity demanded by Mr. R at $3 per
slice). Mr. R gets a bargain on the first 2 slices of pizza because he pays less than what
he is willing to pay.
The bargain Mr. R gets on pizza can be calculated. He pays $3 for the first slice but is
willing to pay $12. Therefore, he gets a bargain of $9 (willing to pay $12 – actually pays
$3). The bargain he gets on the second slice is $3 (willing to pay $6 – actually pays $3).
His total consumer surplus (or total benefit) is the total of his bargains ($3 + $9), $12.
Therefore, consumer surplus is the total benefit that Mr.R (the consumer) receives from
a good or service. Therefore, the law of diminishing marginal utility guarantees that
consumer’s get bargains, since consumers receive more benefit from a product than they
actually pay for it.
The total benefit (consumer surplus) is the addition of all marginal utility. Alfred
Marshall, an English economist, was the founder of this theory. He also was the first to
use supply and demand graphs in understanding “tricky” concepts such as elasticity and
equilibrium.