Page 84 - DECO101_MICRO_ECONOMICS_ENGLISH

Unit 6: Consumer Behaviour: Ordinal Approach

No different was the case of luxury cars either. Although the car segment as a whole was Notes
able to post a growth in sales of 2.6 per cent, for the second time in a row the luxury car
segment was able to grow only in single digits. Now that the base has widened much more,
the days of a double digit growth in any of these segments is a near impossibility.

Table 1: Production and Sales in April-May 1996-98
Production Variation Production Variation
1997-98 1996-97 1997-98 1996-97
HCV 216.30 211.53 2.25 154109 192272 -19.80
LCV 21870 22293 -1.89 18682 20617 -9.38
Cars 60593 60415 0.29 58850 57360 2.59
Utility Veh. 71083 71239 -0.22 69471 69216 0.37
Scooters 189414 220645 -14.15 191457 211233 -9.37
Motor cycles 172703 140659 22.78 168337 136916 22.93
Mopeds 92470 10701 -13.59 89122 100969 -11.73

Question

How did slowdown affect the can industry?

6.4 Consumer Surplus

Consumer surplus is the satisfaction that a consumer obtains from a good over and above the
price paid. This is the difference between the maximum demand price that buyers are willing to
pay and the price that they actually pay. A related notion from the supply side of the market is
producer surplus.

Example: Rahul is willing and able to pay ` 30 for a packet of chips. This is his demand
price. However, the going market price, the actual price that everyone pays for a packet of chips
is ` 25. While Rahul is willing and able to pay ` 30, he pays only ` 25. He receives a ` 5 consumer
surplus on this purchase.
A comparable surplus from the supply side of the market is producer surplus. It is the revenue
that a producer obtains from a good over and above the price paid. This is the difference between
the minimum supply price that sellers are willing to accept and the price that they actually
receive.

Example: Suppose that ABC Chips Producer is willing and able to accept ` 20 for a
packet of chips. This is its supply price. This is what it needs to receive to cover production cost.
However, the going market price, the actual price that everyone pays for a packet of chips is `
25. While ABC Chips Producer is willing and able to accept ` 20, it receives ` 25. It receives ` 5
producer surplus on this sale.

A Diagrammatic Representation

The demand curve shows the quantum of demand at various potential prices, just as the supply
curve shows the supply level to the market at various potential prices. For example, at too high
a price like OP , there is no demand and at too low a price OP , there is no supply. Consumable
1 2
quantities are indicated by the demand curve and marketable supplies are indicated by the
supply curve.

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