Grounds on which the concept of consumer’s surplus is criticized are as follows:
Grounds
1. Cardinal measurement of utility is impossible:
Utility cannot be measured in cardinal numbers because utility is subjective. Thus, Marshallian concept of consumer’s surplus is impractical.
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2. Unrealistic assumptions:
The assumptions such as constant marginal utility of money, independent utilities are unrealistic. Therefore, measurement of consumer’s surplus is not possible by utility approach.
3. Ignores income effect:
Assumption of constant income is unrealistic. The price which a consumer is willing to pay depends on the level of income.
At higher income a consumer may be ready to pay more and vice-versa. Thus, increase in income increases consumer’s surplus.
4. Assumption of constant marginal utility of money:
Consumer’s surplus cannot be measured if we assume constant marginal utility of money. When a consumer spends some part of his income on a commodity, then he is left with less amount of money to purchase other goods.
Marginal utility of money will increase with decrease in money income and this makes the measurement of consumer’s surplus difficult.
5. Articles of distinction and Giffen goods:
Consumer’s surplus cannot be measured in case of articles of distinction because the law of demand is not applicable to these articles.
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Similarly, since the Marshallian demand curve does not include Giffen goods in it, the consumer surplus is not measureable for these goods also.
6. For necessities of life consumer surplus is infinite:
Many a times a consumer may be ready to forego even his entire income to satisfy his necessary wants.
Life saving drugs is an example to quote. Therefore, consumer surplus is infinite in case of necessities of life.
7. Substitutes:
Marshall has assumed that a commodity has no substitutes. Availability of substitutes cannot be ruled out.
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In the absence of substitutes a consumer may be willing to pay high price for a commodity. But if substitutes are available then the consumer will be ready to pay some lower price. Thus, measurement of consumer’s surplus becomes difficult due to the presence of substitutes.
8. Vague Concept:
Consumer’s surplus is no doubt a theoretical concept. There is no meaning, according to Prof. Nicholson, in saying that utility of £ 100 at one place is equal to the utility of £ 1000 at another place.
If we accept the argument of Ulisee Gobbi then the question of consumer’s surplus docs not arise.
According to Ulisee Gobbi the utility of proceeding falls and becomes equal to succeeding units when a consumer takes additional units of a commodity. If it happens, then consumer surplus will be zero.