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## Microeconomics

### Course: Microeconomics>Unit 4

Lesson 1: Consumer and producer surplus

# Consumer surplus introduction

Explore the concept of consumer surplus in economics using a car sales example. See how the demand curve can be viewed as a marginal benefit curve, and how consumer surplus is the total excess of marginal benefit above the price paid. The video highlights that sellers may sell items below their potential value. Created by Sal Khan.

## Want to join the conversation?

• Is the \$60,000 basically the HIGHEST price the consumer is willing to pay and the \$30,000 the price the consumer actually pays?
• 60,000 is the price that 1 consumer is willing to pay per day, Only 1. For some reason the price is 30,000 so he ends up paying 30,000; although, there are other costumers willing to pay 30,000 that day for a new car (4 people).
• Is marginal benefit actually the price the consumer willing to pay?
• Marginal benefit is exactly what you are willing to pay because you pay the price for the value/benefit/utility you get. Assume you are thirsty and is willing to pay \$10 for bottle of water. When you have drunk one bottle but would still like a second bottle of water, you are not willing to pay as much as \$10, because you are less thirsty now and would get less value/benefit/utility from one bottle of water.
The value of one bottle of water decreases the more bottles of water you have, thus decreasing marginal benefit is what we face as well as a downward sloping demand curve.
• I would really like to know what is the differences between marginal benefit and marginal
utility. So far I can understand is that marginal benefit is what a consumer is willing to pay, So if I want to pay \$1000 for an Iphone and actually the price of the Iphone is then \$1500, what would be my marginal benefit? thanks
• can you have negative consumer surplus? like you buy something that cost more than you wanted to spend on it?
• The consumer reservation price (i.e. where cost=marginal benefit) is how much you WILL buy it for, i.e. by definition, you won't buy something if it's below your reservation price.

If you bought an item at price A but wanted it for a lower price B, your reservation price is still greater than or equal to A, because you bought the item.
• If supply was to increase, would consumer surplus rise or fall?
• If you assume that the price is not changed at all, the consumer surplus would not change because it is not related to supply. It is how much a consumer is willing to pay.
• Well, as I understood, if I bought iPhone for 1.000\$ (is this my marginal benefit???) and now this phone of price is 800\$ then consumer surplus is -200\$ ? Marginal benefit is current price of product? Or I don't understand something ? Thanks.
• Is the consumer surplus the Marginal Benefit-actual market price?
So potentially, does the 1st consumer have 30k saved?
• Consider an English auction. There is an item for sale that I am willing to pay no more than \$30 for. You are willing to pay no more than \$50 for it. Joe is willing to pay no more than \$10 for it. Mary is willing to pay no more than \$40 for it.

Each of us has a willingness to pay. That is our marginal benefit—our willingness to pay. Presumably, the item is going to go to you, as you're willing to pay the most. Let's say we all bid up the item until you bid \$40. At that point, no one else will go higher—not even Mary, since the next highest bid would be greater than her willingness to pay. If she bought it for \$45, the price would exceed the benefit she would receive.

So let's say you buy it for \$40. You were willing to pay \$50. Since your marginal benefit exceeded the price you paid by \$10, you obtained \$10 of consumer surplus. To directly answer your question: yes, consumer surplus is marginal benefit – price.

Now, did you "save" \$10? Not really. You were willing to pay more, but all that means is that you received some consumer surplus—you received more benefit by taking part in the market (and buying the item) than you would have received by staying out of the market (that is, not buying the item and keeping your \$40).