The law of consumer surplus is based on
A). Indifference curve analysis
B). Revealed preference theory
C). Law of substitution
D). The law of diminishing marginal utility
The law of diminishing marginal utility
The law of consumer surplus is based on the law of diminishing marginal utility. The concept of consumer surplus is derived from the law of diminishing marginal utility. As per the law, as we purchase more of a commodity, its marginal utility reduces. Since the price is fixed, for all units of the goods we purchase, we get extra utility. This extra utility is consumer surplus.