Economics Report: Analyzing Consumer Surplus and Two-Part Tariffs

This report delves into fundamental economic concepts, focusing on the economy, economic theories, and their practical applications. It explores the significance of consumer surplus, explaining how it functions and its impact on market dynamics. The report provides a comprehensive analysis of the demand curve, illustrating its role in understanding consumer behavior and pricing strategies. Furthermore, it examines the two-part tariff, a pricing strategy used to extract consumer surplus, particularly in monopolistic markets. The report discusses the application of these concepts, providing examples and highlighting their importance in business and economic decision-making. Overall, the report offers a detailed examination of how these economic principles shape market outcomes and influence business strategies, with the goal of enhancing profitability and understanding market dynamics.

ASSESSMENT

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
Task..............................................................................................................................................3
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Economy is very important and it requires a good control to have the best economy situations of
a country and there are a lot of different policies in ways made by the government to control the
economic standards so that the organizations can work and increase the productivity and
profitability. The research report will discuss the economy and the economic theories and will
also explain the demand curve and the two-part tariff which help in extracting the consumer
surplus. The report further explained the consumer surplus and how the consumer surplus can
impact the market of the organizations.
MAIN BODY
Task
Economy: economy is social science concerned with production, consumption of goods,
distribution of goods and services in the market and it is a study in which how individuals and
businessmen and the government of the country make choices about how the resources are
allocated. Economy always focus indirection of human beings on the other mission that humans
act with rational behaviour, to get the maximum and most optimal level of benefit. It is the Study
of allocating the scarce resources for distributions and consumption for both individual and
collectively (Basov, Averitt and Hsieh, 2017).
Economic theory: The idea in the principles that aim and objectives to provide the basic
description of how economic works. economy is one of the most important part of the country
and it is very important to have the good economy and economic conditions to work. basic
economic theory state that in the villages are too high the economic growth will suffer a lot.
The principle and problems of economies that a human being and person have unlimited wants
and they want to occupy a world of limited means.
Consumer surplus: consumer surplus is the concept which was developed in 1844 two
measures an utilize the social benefit of the public good for example the canals and bridges,
national highways etc. it is one of the very important tools in the field of welfare economy and it
also includes the formulation of different text policies by the government to improve the
economy. consumer surplus is based on the economic theory of marginal utility. Marginal utility
is the benefit which the consumer gets from consuming additional product and services
(Colombo and Labrecciosa, 2018). It is the additional satisfaction or consumer gain buy more
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units of product or goods and services. the utilities are always dependent on the preferences of
the person and the utility of goods and services always varies from individuals to individuals as
the taste preference are totally different from person to person. The more goods and services a
consumer have the less they want to spend the money on and the less they are willing to spend
on it. It is because of the diminishing marginal utility and the additional benefits they receive.
Measuring consumer surplus with the demand curve
Demand: Demand is one of the economic principles which refers to the consumers desired for a
particular goods and services which they want to purchase and willing to pay a different and
specific price for that product and services. Increasing the price of a good or service will
decrease the quantity demand and it will reflect the vice versa as if the price decreases the
demand will decrease. market demand is total quantity demand for all the consumers in the
market for the particular product and services and the aggregate demand is the total demand for
those goods and services in the economy (Cohen and et.al., 2016). demand scan means for the
market demand for product and services or the aggregate demand for total of goods in the
economy. Dim and reflect the value of the product and services as if the demand is high people
want to buy the product and services and it is closely related to supplies.
Demand curve: demand curve is one of the graphical representations which is used to show the
demand of the product and services and it is used by the consumer and the seller to understand
and calculate the consumer surplus. the demand curve shows a relationship between the product
price and the quantity of the product which shows the demanded at that price. the price is drawn
on the Y axis of the graph and quantity demand, drawn on the X axis. when the demand curve go
downwards and sloping it is because of the law of diminishing marginal utility, when the love
diminishing marginal utility shows the demand curve is made downward and sloping (Lancia
and Russo, 2016).
Consumer Sir plus is measured with the area below the downwards sloping demand curve in the
demand curve graphical representation. It also shows that the amount a consumer wants to spend
for the quantity of good and services over the above actual market price of the goods which can
be seen with the horizontal line in the graphical representation which was drawn between the Y
axis and demand curve.
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The consumer surplus can be calculated on individual or on the aggregate basis as it shows the
depending of the demand curve is made on individual or aggregated. Consumer Sir plus mostly
increase as the price of the goods are always and false and decrease as the price of goods rises.
Example of consumer surplus, consumer surplus is the benefit of having a good feeling or getting
a good deal when a person is looking for something in the market. For example, if a person
wants to buy an airplane ticket for Disney during the school vacations week $100, But the
consumer was expecting Anne was willing to pay $300 for one ticket. the difference between the
willing price and the cost is the consumer surplus which is $200.
In some of the organizations and the businesses want to increase their gains and for that they
want to turn the consumer surplus into the producer surplus. for example, if a person wants to
buy a ticket in the vacations and the business knows that it will create a consumer surplus then
they will draw and raise their prices for the ticket and can create a consumer surplus into the
producer surplus for their gain (Cohn and Hira, 2020).
Two-part tariff
Two-part tariff is a form of price discrimination, it shows that the price of a product and services
is composed for two parts, the two parts include a lump sum fees as well upper unit charge of the
product and services which are totally different. these kind of pricing techniques are mostly
occurred in monopolistic market (Lv, Xiao, Xu and Guan, 2019). It is made and designed so that
they can attract more and capture more consumer surplus. two-part tariff also exists in the
competitive market where the competition is very high in the market and the consumers are
uncertain for their demands. the best example of uncertain demands are the health club
consumers as they are unaware and uncertain about their future commitments for the exercise
and for the health. These types of examples are the best example for the uncertain demands of
the consumer as the uncertainty can be reflect do the preferences and the change in the future
commitments of the consumer which can create consumer surplus.
The important element which is important to concern in the two part tariff is that the product or
services which are offered by the firms can be identical to the customers and the consumer. the
price charges may vary but it is not because of the different cost born by the firm, it would imply
due to differentiated product. when a person uses the credit card the credit card charges annually
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fee plus a pre transaction fee which is one of the great examples of two-part tariffs. on the other
end the fix features by different rental companies which are according to the situations.
Two-part tariff and consumer demand are homogeneous
When the customer and consumers have the homogeneous demand, anyone consumer is
representative. Of the market. it is due to the one consumer who interacts with the firm regularly
and have an experience of fixed cost and constant cost per unit with the horizontal marginal cost
line. If the firm is perfectly competitive, they will charge a price in supply to the customer by
making no profits in the economic but producing an allocative efficient output
A two-part tariff is one of the price discrimination technique which consist the charging of the
customer with a fixed price for the right to purchase the product and then a price per unit
consumed. the best example of this is Golf Club and amusement park (Bai, Chen, and Xu, 2017).
Apple is one of the best examples of monopoly market is the demand of the product and services
of Apple is huge in the monopoly market help the organization in achieving better profit because
people are focused in iOS technologies which only Apple provide energy is in Houma genic
market which help the organization in achieving maximum profit. Apple make a limited amount
of product with a huge price and people are ready to pay any kind of price for the product so that
they can receive the product and services of the Apple and it is one of the major factors which is
providing Apple in getting growth.
The monopoly market instructs all consumer Sir plus in the first tariff and the second tariff is the
price per unit to equal the price to marginal cost which create a no Sir plus as the surplus cannot
be extracted twice. people are willing to pay the amount but the monopolies can charge different
entrance fees for each consumer according to their payoff billing and for that extracting the
consumer surplus they take a good amount.
Organisations try to extract consumer surplus with two-part tariffs
Two tariff works differently as the first tariff show the fixed price and the second tariff shows a
per unit price which help the organizations introducing and extracting the consumer surplus in
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the market and it is very important for the organizations to use the two-part tariff. Two part tariff
in the Golf Club reflect as the people come and pay for a particular fixed amount so that they can
play the golf and after that upper unit is charged for a particular minute of time which is the
second tariff which organization use so that they can extract the consumer surplus and helped the
organization in increasing their profitability (Banzhaf and Mangum, 2019).
Two-part tariff is important so that they can make the necessary advantage with the strategy of
two-part tariff so that the supplier got a power in the market and the producer must be able to
control access in the market and they can extract the consumer surplus. It is very important for
the organization and forms to have a good control in the market so that they can extract
consumer Sir plus and increase their profitability because it is very important for the
organisations to have the market power and the suppliers must have the market power so that
they can supply and increase their profits in the market and then extract the surplus of the
consumers which can damage the power if they does not use the strategies to extract the
consumer surplus.
Utilizing a two-part tariff provide an advantage of to the producers who are making the product
and services get a control access in the market Ann can extract the consumer surplus which
helped them in producing more of the product and have a good market control which helped in
better management and the business and decrease the market surplus.
CONCLUSION
the report concluded that it is very important to understand the demand of the market and to
utilize that demand to increase the productivity and profitability and it is very important to use
the two part tariff to control the customer Sir plus and to decrease and extract the customer Sir
plus in the market and get a control by the supplier and producer in the market.
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REFERENCES
Books and Journals
Basov, D.N., Averitt, R.D. and Hsieh, D., 2017. Towards properties on demand in quantum
materials. Nature materials, 16(11), pp.1077-1088.
Cohn, T.H. and Hira, A., 2020. Global political economy: Theory and practice. Routledge.
Lancia, F. and Russo, A., 2016. Public education and pensions in democracy: A political
economy theory. Journal of the European economic association, 14(5),
pp.1038-1073.
Cohen, P., Hahn, R., Hall, J., Levitt, S. and Metcalfe, R., 2016. Using big data to estimate
consumer surplus: The case of uber (No. w22627). National Bureau of
Economic Research.
Colombo, L. and Labrecciosa, P., 2018. Consumer surplus-enhancing cooperation in a natural
resource oligopoly. Journal of Environmental Economics and
Management, 92, pp.185-193.
Bai, Q., Chen, M. and Xu, L., 2017. Revenue and promotional cost-sharing contract versus two-
part tariff contract in coordinating sustainable supply chain systems with
deteriorating items. International Journal of Production Economics, 187,
pp.85-101.
Lv, F., Xiao, L., Xu, M. and Guan, X., 2019. Quantity-payment versus two-part tariff contracts
in an assembly system with asymmetric cost information. Transportation
Research Part E: Logistics and Transportation Review, 129, pp.60-80.
Banzhaf, H.S. and Mangum, K., 2019. Capitalization as a Two-Part Tariff: The Role of
Zoning (No. w25699). National Bureau of Economic Research.
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