... therefore understand that consumer demand is a measure of willingness to pay and that consumers are often willing to pay an amount higher than market price for a commodity rather than do without it. However, for each successive unit consumed, the amount the consumer is willing to pay decreases. Following on from this point it is evident that a consumer's surplus represents a reward to a consumer for participating in the market place. Consumers do have a choice. Either they could avoid market participation and spend nothing and receive nothing of value or they can purchase a certain quantity of this good and receive value over-and-above the market price. Consumer surplus is therefore based on the theory of diminishing marginal utility. In this way the area between the demand curve and the equilibrium price is recognised as the consumer surplus. An individual's consumer surplus can be calculated by using the following ...

See this essay or coursework document in full right now