consumer surplus

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Fig. 25 Consumer surplus.

consumer surplus

a difference between the price the consumer is actually required to pay for a product compared to the price the consumer would be prepared to pay. In Fig 25, which shows a downward-sloping demand curve for a product, the price charged is indicated by P. The shaded area above P represents the consumer surplus. To illustrate: you are a Manchester United Football fan; tickets for a home game are currently priced at £50 but you would be willing to pay £75. Hence you have ‘received’ as a consumer a ‘perceived benefit’ or ‘surplus’ of £25 over and above the price actually charged.

Business strategists can use the concept of the consumer surplus to increase the firm's profits and COMPETITIVE ADVANTAGES over rival suppliers (see VALUE CREATED MODEL). For example, in the case of Manchester United instead of charging a single price of £50 it could segment its market, charging different prices for admission to different parts of the ground. (See PRICE DISCRIMINATION, MARKET SEGMENTATION) in order to ‘capture’ more of the consumer surplus for itself. Thus, it could continue to charge the ‘basic’ price of £50 for admission to certain parts of the ground; £75 for seating in the main stand and £120 for an ‘executive box’ seat. Similarly, BSkyB the television broadcaster offers subscribers not only a basic ‘variety’ package of some 75 channels but other extra pay channels such as Sky Sports 1,2 and 3 and the movie channel.

Collins Dictionary of Business, 3rd ed. © 2002, 2005 C Pass, B Lowes, A Pendleton, L Chadwick, D O’Reilly and M Afferson
References in periodicals archive ?
This is causing the consumer's surplus to grow and the producer's surplus to shrink.
For the quarterly data from 1980 to 2006, the semi-elasticity is estimated to be 1.79 and the welfare cost of inflation is measured using consumer's surplus approach of calculating the area under the money demand curve.
4) into Equation 22, we achieve the consumer's surplus for the variable market size under mill pricing, uniform pricing, and discriminatory pricing, respectively, as
The assumption of no income effect enables one to use the consumer's surplus as an exact measure of the excess amount a consumer would be willing to pay over the variable payment, pq, which he makes under the twopart tariff.
All the intramarginal gains are dissipated in increased consumer's surplus. If no new innovation is forthcoming, a reversion to Schumpeter's stationary state occurs.
The increase in wholesale price of wheat in Pakistan and resultantly decrease in quantity demanded would have caused a loss of consumer's surplus of Rs 12,557 million (using Equation 5 of the analytical framework in methodology).
(31) For a technical analysis of the conventional measurement of consumer surplus, see Robert Willig, Consumer's Surplus Without Apology, 66 AM.
In the fifth part I discuss some implications of the model for consumer's surplus and welfare.
Resource economists have traditionally focused on measures of consumer's surplus. The traditional travel cost method has been useful for measuring consumer's surplus (although, see Randall 1994), but only for historical data.
Then consumer's surplus, due to a MC firm facing constant elasticity demand, will be at least as large as the firm's gross profit.
Consumer's surplus for households located at r, s(r), is given by (4) [Mathematical Expression Omitted] Overall consumers' surplus is (5) [Mathematical Expression Omitted] Welfare maximization implies maximization of [Pi] + S, which has been shown to required e = 1,(7) or marginal cost pricing.
"Automotive Fuel Economy Improvements and Consumer's Surplus." Transportation Research 22A (3):203-18.

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