PL EN


2020 | 21 | 1 | 49-65
Article title

Consumer surplus and budget constrained preference maximization: A note

Authors
Content
Title variants
Languages of publication
EN
Abstracts
EN
The paper attempts to rectify what appear to be popular but elementary misconceptions about the concept of consumer surplus in the context of Marshallian demand curves. It is primarily addressed to teachers of microeconomics at the undergraduate level or in MBA programs of business schools. The main text informs the reader about the model/context and the results we are concerned with, all of the latter being a comprehensive teaching note, relegated to an appendix of the paper. Thus, the potential instructor may use the main text to motivate himself/herself and at the same time inform his/her students as to the topic i.e. the rehabilitation of consumer surplus as an exact measure of welfare from the stand-point of cost benefit analysis. Thereafter the appendix can be referred to for a more formal presentation. The technical results contained in the appendix begin by showing that willingness to pay is the area under the demand curve if and only if consumers are surplus maximizers. The last result in the appendix is a theoretically ‘happy ending’ since it shows that for purposes of applied economics, budget constrained preference maximization implies surplus maximization and hence for such consumers, willingness to pay is indeed the area under the demand curve up to the quantity consumed.
Publisher
Year
Volume
21
Issue
1
Pages
49-65
Physical description
Contributors
author
  • PD Petroleum University, School of Petroleum Management
References
Document Type
Publication order reference
Identifiers
YADDA identifier
bwmeta1.element.desklight-01ba06c0-455e-4792-8724-d680ef351edd
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