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How Do You Calculate Consumer's Surplus? What Happens to Consumer's

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Essay

How do you calculate consumer's surplus? What happens to consumer's surplus when the price of a commodity rises?


Definitions:

Substitution Effect

The change in consumption of goods in response to a change in their relative prices, holding the consumer's level of utility constant.

Total Utility

The total satisfaction or benefit that a person derives from consuming a certain quantity of goods or services.

Budget Line

A graphical representation of all possible combinations of two goods that a consumer can purchase at given prices and within a fixed budget.

Money Income

The total amount of monetary earnings received by an individual or household, including wages, salaries, and other forms of income.

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