How can we relate consumer
surplus with the elasticity of demand in real life?
When demand
for certain product or services does not change with the change in price
consumer surplus is zero because people will pay exactly what they are
determined to pay.
On the
contrary when demand does not change with the change in price consumer surplus
is infinity.
Business
usually takes the advantage from the second scenario as they raise their prices
when demand is inelastic so that consumer surplus can be turned into producer
surplus.
The bitter truth:-
Whenever I
buy ticket for any transportation modes be it be for flight, Train, bus etc. I
need to book it in advance otherwise the price of the tickets gets high.
Recently I faced this when I booked ticket for Bangalore from Kolkata. I wanted
to travel in the month of may and since I booked in that month I was charged
Rs. 10000 whereas my friend who booked the same flight two months earlier was
charged Rs 4000 only. Why did it happen?
If I want to
understand by the terms of economics this nothing but transport companies sell
the tickets in a cheaper rates to those who book in advance because they simply
enjoy the cash flow and are happy because the seats are getting full.
But in my
case since it was very important for me to travel because my college was going
to start I had to come whatever the price was. In my case my demand became price inelastic.
I had to pay whatever the price would be. Companies also know this very well.
So the raise the prices of the tickets and thus consumer surplus turned into producer surplus.
No comments:
Post a Comment