What Does Consumer Surplus Measure

Our goal in developing the concept of consumer surplus is to make judgments about the desirability of market outcome*. Now that you have Seen what consumer surplus is. let's consider whether it is a good measure of economic well-being.

Imagine that you are a policymaker try ing to design a good economic system. Would you care about the amount of consumer surplus? Consumer surplus, the amount that buyer» are willing to pay for a gixxl minus the amount they actually pay for it, measures the benefit that buyers receive from a good as the buyers themselves perceive ii. Thus, consumer surplus isa good measure of economic well-being if policymaker» 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 no I a good measure of economic well-being, because addiclsare 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 the)' buy.

QUICK QUIZ Draw a demand curve for turkey. In your diagram, she« a price of turkey and the consumor surplus at tKat prico. Explain in words what this consumer surplus measure«.

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