Importance of concept of Consumers’ Surplus

Importance of concept of Consumers’ Surplus:

1. Determination of monopoly price: This concept is useful to determine the price of commodity. Monopoly producer should observe the psychology of consumer while determining the price of product. When they feel that consumers are ready to pay more they raise the price of goods and maximize their profit.

2. Public finance: This concept is helpful to formulate the tax policy which is known as public finance. The best tax policy is that which maximize the public revenue with the least sacrifice. For that government impose high tax on such commodity where consumer enjoys much surplus.

3. To make cost benefit analysis: This concept is useful in the field of cost benefit analysis which is very useful tool in the field of research and developing work. Consumer surplus is measured in terms of benefit and cost of a particular good. Similarly to choose a project it is necessary that benefit or surplus must be greater than cost.

4. Comparison of economic condition: We can compare the economic condition of nation by the help of concept of consumer surplus. In developed nation commodity are available at cheaper rate so consumer can enjoy higher surplus but in underdeveloped nations commodities are available at higher price where consumer enjoy low surplus. So, higher consumer surplus is identified as developed nation and vice-versa.

5. International trade: This concept is best for international trade. Goods which have large consumer surplus is imported than domestic production should be imported. The goods that have large consumer surplus in domestic production than import should not be imported.