Every consumer in the market is concerned with the buying activities to meet his needs of different commodities. It is not difficult to conceive of consumer surplus that accrues to a man when he buys a commodity. This surplus he experiences at the time of making the purchase. It is the difference between the utility that he expects to drive form the consumption of the commodity and the price, paying for it. Consumer’s surplus can be understood in terms of satisfaction, but has to be measured in terms of some objective units. The most convenient medium in which to measure consumer’ surplus is money.
It is easy to see how this surplus arises. Each unit of a commodity that the consumer buys costs him only as much as the last unit is worth. But according to the law of diminishing marginal utility, the earlier units are worth more to him than the last. He enjoys surplus on each of the earlier units. He stops the purchase, when there is nothing to gain. The citizens of modern efficient communities are luck, as they enjoy buying a vast array of goods at low prices.
Consumer Price and Price Market
The consumer’s surplus arises from the fact that some of the purchases are marginal, while others are not. The units purchased earlier enjoy a surplus. The purchase in the perfect market yield surplus from all commodities purchased consists in the advantages that one has in spending money rather than saving it. The consumer’s surplus is therefore greater; the greater is our want for commodities now as compared to the wants for theme in the future.
In the same way we can think of consumer’s surplus from all the commodities we consume. A person has the option of producing and consuming the various commodities or enjoying leisure. He can utilize his time and energy to produce and consumer goods or he can put them to consumption use. He will distribute his time and faculties between these two uses so as to maximize consumer’s surplus.
The consumer surplus is due to the possibility of putting one’s resources to multiple uses which are not equally beneficial to the consumer.