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2.5.6. Consumer’s Surplus
The law of diminishing marginal utility helps to explain the concept of consumer’s surplus. The excess of utility foregone or disutility suffered is called consumer’s surplus. Hicks defined it as the difference between the marginal valuation of a unit of good and the price which actually paid for it. It simple terms, consumer’s surplus refers to the difference between what we are prepared to pay and what we actually pay. The concept of consumer’s surplus is seen in the case of purchase of very useful commodities yet cheap. Some of the examples include soap, salt, post card, match box, new paper etc. The consumer surplus is graphically presented in Figure 4. |
Last modified: Wednesday, 21 December 2011, 10:13 AM