Assumptions and Criticisms of Consumer Surplus

Assumptions: 

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. 

Criticisms: 

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)