CMA Foundation · Fundamentals of Business Economics and Management · Utility, Wealth, Production
A hungry student in Pune would pay Rs 40 for his first plate of poha. He actually pays Rs 25 for it. Which concept describes the Rs 15 difference, as taught in basic utility theory?
The Rs 15 difference is consumer's surplus. It is the gap between the maximum price the student is willing to pay, Rs 40, and the price actually paid, Rs 25. It measures the extra satisfaction the buyer gains from the purchase.
- AConsumer's surplusCorrect
- BProducer's surplus
- CMarginal cost
- DDeadweight loss
Explanation
Consumer's surplus is the excess of the price a consumer is willing to pay over the price actually paid. Here 40 - 25 = Rs 15. Producer's surplus relates to sellers, not buyers, so it is wrong.
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