Question

Question 13 (4 points) Which of the following is true regarding Marginal Valuation? it is equal to consumer surplus If it is higher, a consumer gets less consumer surplus when the item is on sale It has nothing to do with consumer surplus If it is higher, a consumer gets more consumer surplus when the item is on sale

Answer 1

Marginal valuation is defined as the maximum amount a consumer is willing to pay for the particular unit of the given commodity. The difference between the market price and the marginal valuation of the price gives us the value of consumers surplus. Consider for example that the price of a smartphone in market is ₹10000 but the consumer is willing to pay ₹15000. Since the price is ₹10000 the consumer will buy the smartphone at the given market price and thus enjoy a surplus of ₹5000.

consumer surplus = marginal valuation - price. So marginal valuation will be equal to consumer surplus only in the case when price is zero, which cannot be true. Hence we reject option(a).

Thus if the marginal valuation (willingness to pay) is higher and at the same time the object is on sale i.e the consumer gets the object at discounted price(below market price) then this will surely increase his surplus.

so correct answer is option(d).