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The doctrine of consumer's surplus is based on: 1. the indifference curve analysis 2. the theory of revealed preference 3. the law of diminishing marginal util
The doctrine of consumer's surplus is based on: 1. The indifference curve analysis 2. The theory of revealed preference 3. The law of diminishing marginal utility 4. The law of substitution
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Nidhi taparia Best Answer
Option 3 is correct. The concept of Consumer Surplus is derived from the law of Diminishing Marginal Utility. It is because of diminishing marginal utility that consumer's willingness to pay for additional units of a good declines with successive consumption. Equilibrium is when marginal utility becomes equal to price. Consumer's surplus is the measure of additional utility derived out of all the previous units of this good.