Price and Utility, Consumer surplus, consumer behavior.

1. Relationship of Price
and Utility
S.A. Qureshi

2. Price and Utility
The price that a consumer is willing to pay for a commodity depends on the
MU he expects to derive from it. Therefore, for initial units he will be willing to
pay more and for the later units he will pay less. Therefore, as long as the MU
derived is greater than the price, the consumer will go on consuming it. The
consumer stops at a point where his MU is equal to price. Beyond this point his
MU is less than price and, therefore, he will be the loser.

3. Price and Utility
Units of
Consumption
MU Price MU of
Money
Comparison
1 50 10 50 MU>Price
2 40 10 40 MU>Price
3 30 10 30 MU>Price
4 20 10 20 MU>Price
5 10 10 10 MU=Price
6 5 10 5 MU<Price

4. Consumer Surplus
Consumer surplus is an economic measure of consumer benefit. It is calculated
by analysing the difference between what consumers are willing to pay and
what they actually pay for the good or service. A consumer surplus occurs
when the consumer is willing to pay more for a given product than the current
market price.

5. Consumer Surplus
MU
50
40
30
20
10
MU curve05
Market Price
Consumer
Surplus
0
1 2 3 4 5 6

6. Relationship of Price
and Utility
S.A. Qureshi