Question

Critically evaluate the concept of consumer’s surplus.

Answer 1

The following is the critical evaluation of the concept of consumer’s surplus:

1. Consumer’s surplus is fiction, fantasy and misleading because most consumers cannot pay for more than their income.
2. It is based upon the invalid concepts that different units of the goods give different amount of satisfaction to the consumer.
3. It ignores the interdependence between the goods, that is the relationships between substitute and complementary goods.
4. It is based upon questionable assumptions of cardinal measurability of utility and constancy of the marginal utility of money.