Alfred Marshall's Theory Of Consumer Surplus

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Introduction In 1890, Alfred Marshall published the book ‘Principles of Economics’. In this book Marshall defines that both demand and supply determine the price and quantity of a good, introduces price elasticity of demand and makes important contributions to the concept of consumer surplus using utility analysis. Since then, many economists have criticized Marshall’s theories. In particular, Marshall’s analysis of consumer’s surplus has been a highly controversial topic (Pfouts, 1953). Regarding the concept of consumer’s surplus, Marshall asserted that the marginal utility to a consumer typically declines with each additional unit of commodity acquired, while the price remains the same. Furthermore, Marshall stated that a consumer will purchase additional units until the marginal utility he gets from the last unit equals the price paid. Consequently, from all but the last unit the consumer gets an excess of satisfaction over expenditure. Marshall named this concept consumer 's surplus (Marshall, 1920). The concept of consumer’s surplus has especially been relevant in measuring the well-being of consumers and the welfare effect of policy changes on consumers (Currie, Murphy, & Schmitz, 1971). Marshall gave an elaborate and comprehensible description of consumer 's surplus and he directed how consumer’s surplus relates to economic welfare. However, for his theory on consumer’s surplus Marshall did make a couple of simplifying assumptions. Consequently,

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