Measurement of Consumer’s Surplus with Indifference Curve

As has been noticed above, Marshall measure of consumer’s surplus has been sever criticism. The most important objection against the Marshall measure of consumer’s surplus with the help of demand curve (or marginal utility curve) is that it is based 011 the twin  assumptions that utility is measurable and marginal utility of Kinney remains constant  Solis pend: more of it on a particular goods. money on the one hand and OH of continuity A plus OS (= HR) of money. In other words, he is prepared to payer forego FR (= Y I S) amount of money for OH of commodity A. His obtaining OH amount of commodity A as against FR amount of money depends upon his preference and is independent of any price in the market.

Suppose now that the price in the market is as represented by the price line YI L, money with the consumer remaining the same. With this price in the market he will be in equilibrium at point P on a higher indifference curve II and in this equilibrium position he will actually forego FP (= YI T) amount of money for OH of commodity A. But independent of the price in the market he was prepared to pay FR amount of money for OH of commodity A. Tits, he has to pay PR amount of money less than what he is prepared to  pay. Hence, PR is surplus which accrues to our consumer because of the fact of this particular market price

[av_button label='Get Any Economics Assignment Solved for US$ 55' link='manually,' link_target='' color='red' custom_bg='#444444' custom_font='#ffffff' size='large' position='center' icon_select='yes' icon='ue859' font='entypo-fontello']

Share This