CONSUMER'S SURPLUS

in economics, difference between the price a consumer pays for an item and the price he would be willing to pay rather than do without it. As first developed by J. Dupuit, French civil engineer and economist, in 1844 and popularized by British economist Alfred Marshall, the concept depended on the assumption that degrees of consumer satisfaction (utility) are measurable. Because the utility yielded by each additional unit of a commodity usually decreases as the quantity purchased increases and because the commodity's price reflects only the utility of the last unit purchased rather than the utility of all units, total utility exceeds total market value. A telephone call that costs only twenty cents, for example, is often worth much more than that to the caller. According to Marshall, this excess utility, or consumer's surplus, is a measure of the surplus benefits an individual derives from his environment. If the marginal utility of money is assumed to be constant for consumers of all income levels and money is accepted as a measure of utility, the consumer's surplus can be shown as the shaded area under the consumer's demand curve in the figure. If the consumer purchases MO of the commodity at a price of ON or ME, the total market value, or amount he pays, is MONE, but the total utility is MONY. The differences between them are the shaded area NEY, the consumer's surplus. The concept fell into disrepute among 20th-century economists because of the realization that the utility derived from one item is not independent of the availability and price of other items and because of the difficulties in the assumption that degrees of utility are measurable. The concept is still retained by economists, in spite of the difficulties of measurement, to refer to the benefits accruing to the modern consumer from his ability to buy mass-produced goods at low prices. It is used in the fields of welfare economics and taxation.