WHAT DOES CONSUMER SURPLUS MEASURE

Our goal in developing the concept of consumer surplus is take make judgments about the desirability of market outcomes. Now that you have seen what Cowper surplus is, let’s consider whether it is a good measure of economic well-being. Imagine that you are a policymaker trying to design a good economic system. Would you care about the amount of consumer surplus? Consumer surplus, the amount that buyers are willing to pay for a good minus the amount they actually pay for it, measures the benefit that buyers receive from a good as the buyers themselves perceive it. Thus, consumer surplus is a good measure of economic well-being if policymakers want to respect the preferences of buyers In some circumstances, policymakers might choose not to care about consumer surplus because they do not respect the preferences that drive buyer behavior. For example, drug addicts are willing to pay a high price for heroin. Yet we would not say that addicts get a large benefit from being able to buy heroin at a low price (even though addicts might say they do). From the standpoint of society, willingness to pay in this instance is not a good measure of the buyers’ benefit, and consumer surplus is not a good measure of economic well-being, because addicts are not looking after their own best interests In most markets, however, consumer surplus does reflect economic well-being. Economists normally assume that buyers are rational when they make decisions. Rational people do the best they can to achieve
their objectives, given their opportunities. Economists also .normally assume that people’s preferences should be respected. In this case, consumers are the best judges of how much benefit they receive from the
goods they buy.

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