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Explain what is meant by the term "consumer surplus" and show how changes to individuals' consumer surplus, as a result of price changes can be derived from indifference curve analysis.
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Economics Essay Explain what is meant by the term "consumer surplus" and show how changes to individuals' consumer surplus, as a result of price changes can be derived from indifference curve analysis. Economics can explain the reason why the rational economic man will consume varying levels of different commodities by applying supply and demand theory. When a consumer purchases a good, then utility is gained. The rational consumer weighs up the costs and benefits for each additional unit of a specific good purchased. Utility is therefore the key element when a consumer buys any good or service. When a consumer buys an additional unit of any good, his total utility will increase. However the increase in utility per each additional unit is not as high as the previous purchase. The consumer shall therefore continue to buy the good until there is no additional utility gained. This can otherwise be explained as the...
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