Consumer surplus and budget constrained preference maximization: A note

• Autorzy: Lahiri Somdeb

Identyfikatory

DOI

10.7494/manage.2020.21.1.49

• Języki publikacji: EN

Abstrakty

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.

Słowa kluczowe

EN

demand function; consumer surplus; willingness to pay; area under demand curve; maximization of consumer surplus; budget constrained utility maximization

PL

funkcja zapotrzebowania; nadwyżka konsumencka; skłonność do zapłaty; powierzchnia pod popytem krzywa; maksymalizacja nadwyżki konsumenckiej; ograniczona budżetowo maksymalizacja użyteczności

• Wydawca: Wydawnictwa AGH
• Czasopismo: Managerial Economics
• Rocznik: 2020
• Tom: Vol. 21, no. 1
• Strony: 49--65
• Opis fizyczny: Bibliogr. 10 poz.

Twórcy

autor

Lahiri Somdeb

• PD Petroleum University, School of Petroleum Management

Bibliografia

• [1] Border, K.C. (2003) The Integrability Problem. Caltech, Division of the Humanities and Social Sciences.
• [2] Hayashi, T. (2015) Microeconomic Theory for the Social Sciences, [Online], Available: https://drive.google.com/file/d/0B7aGHEgJSqkpTmtSVWotTmhQSEk/ view [21 May 2020].
• [3] Hayashi, T. (2017) General Equilibrium Foundation of Partial Equilibrium Analysis, Palgrave Macmillan.
• [4] Katzner, D. (1970) Static Demand Theory, Macmillan.
• [5] Katzner, D. (2008) An Introduction to the Economic Theory of Market Behavior: Microeconomics from a Walrasian Perspective, Revised edition, Edward Elgar Publishing Ltd.
• [6] Mandy, D.M. (2017) Producers, Consumers, and Partial Equilibrium. Amsterdam: Academic Press.
• [7] Mas-Colell, A., Whinston, M.D. and Green J.R. (1995) Microeconomic Theory, New York: Oxford University Press.
• [8] Raa, T. ten (2017) Homothetic Utility, Roy’s Lemma and Consumer’s surplus, Economics Letters, vol. 161, pp. 133–134.
• [9] Takayama, A. (1982) On Consumer’s Surplus, Economics Letters, vol. 10, pp. 35–42.
• [10] Takayama, A. (1984) Consumer’s surplus, Path Independence, Compensating and Equivalent Variations, Journal of Institutional and Theoretical Economics, Bd. 140, pp. 594–625.

Uwagi

Opracowanie rekordu ze środków MNiSW, umowa Nr 461252 w ramach programu "Społeczna odpowiedzialność nauki" - moduł: Popularyzacja nauki i promocja sportu (2020).