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Assumptions and Criticisms of Consumer Surplus

Written By Unknown on Saturday, 22 June 2013 | 13:12


This concept is based on the following assumptions. 
  • Cardinal measurement of utility. 
  • Constant marginal utility of money. 
  • The commodity in question does not have substitutes. 


1)_ This law is based on certain assumptions and critics argue that these assumptions are unrealistic. 
  • Utility cannot be measured cardinally; therefore, consumer’s surplus cannot be measured and expressed numerically. 
  • Marginal utility of money does not remain constant. 
  • If commodities have substitutes, with the rising prices, he will purchase other goods rather than pay a higher price for the same. The concept has no theoretical validity. 
2)_ It is meaningless to apply the doctrine of consumer’s surplus to necessaries as the utility derived from necessaries as the utility derived from necessaries is infinite. 

3)_ The concept is imaginary and illusory. It does not exist in reality. We create surplus out of our imagination. 

4)_ It is of no practical significance. Prof. Little says, "The doctrine of consumer’s surplus is a useless theoretical toy".

Notes provided by Prof. Sujatha Devi B (St. Philomina's College)
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