Consumer's surplus :
Alfred Marshall' defines consumer surplus as, "the excess of price which a person would be willing to pay a thing rather than go without the thing, over that which he actually does pay is the economic measure of this surplus satisfaction. This may be called consumer's surplus.

i. Change in Taste and Fashions
ii. Changes in Weather
iii. Taxation and subsidy
iv. Changes in savings
v. Advertisement
vi. Change in income and population

(i) Perfectly Elastic Demand (E_p = \(\infty\))
(ii) Perfectly Inelastic Demand (E_p = 0)
(iii) Relatively Elastic Demand (E_p > 1)
(iv) Relatively Inelastic Demand (E_p < 1)
(v) Unitary Elastic Demand (E_p = 1)

Indifference map refers to a set of indifference curves corresponding to different income levels of satisfaction.

(i) Consumer's surplus = potential price - actual price (or)
(ii) Consumer's surplus = what a person is willing to pay - what he actually pays (or)
(iii) Consumer's surplus = TU - (P x Q)

Levels or Degrees of Price Elasticity of Demand
Definition: The Price Elasticity of Demand is commonly known as the elasticity of demand, which refers to the degree of responsiveness of demand to the change in the price of the commodity.
(1) Perfectly Elastic Demand \(({ E }_{ p }=\infty )\):

The demand is said to be perfectly elastic when a slight change in the price of a commodity causes an infinite change in its quantity demanded. Such as, even a small rise in the price of a commodity can result in greater fall in demand even to zero, In some cases a little fall in the price can result in the increase in demand to infinity. In perfectly elastic demand the demand curve is a horizontal straight line parallel to X-axis.
(2) Perfectly Inelastic Demand \(({ E }_{ p }=0)\):
When there is no change in the demand for a product due to the change in the price, then the demand is said to be perfectly inelastic

Here, the demand curve is a vertical straight line which shows that the demand remains unchanged irrespective of change in the price., i.e. quantity OQ remains unchanged at different prices, \({ P }_{ 1 }{ ,P }_{ 2 },\) and \({ P }_{ 3 }\)
(3) Relatively Elastic Demand (\({ E }_{ p }\) > 1):

The demand is relatively elastic when the proportionate change in the demand for a commodity is greater than the proportionate change in its price. Here, the demand curve is gradually sloping which shows that a proportionate change in quantity from 5 to 10 is greater than the proportionate change in the price from 11 to 10. Change in demand is: 10 - 5/5 x 100 = 100% Change in price = 10%. Hence, it is more elastic demand.
(4) Relatively Inelastic Demand (\({ E }_{ p }\) < 1):
When the proportionate change in the demand for a product is less than the proportionate change in the price, the demand is said to be relatively inelastic.

It is also called as the elasticity less than unity. Here the demand curve is steeply sloping, which shows that the change in the quantity from \(OQ_{ 0 }\) to \(OQ_{ 1 }\) is relatively smaller than the change in the price from \(OP_{ 1 }\) to \(OP_{ 2 }\)
(5) Unitary Elastic Demand (\({ E }_{ p }\) = 1):

The demand is unitary elastic when the proportionate change in the price of a product results in the same proportionate change in the quantity demanded.
Here the shape of the demand curve is a rectangular hyperbola, which shows that area under the curve is equal to one.
Here \({ OP }_{ 0 }{ R }_{ 0 }{ Q }_{ 0 }={ OP }_{ 1 }{ R }_{ 1 }{ Q }_{ 1 }\)
Degrees of Price Elasticity of Demand

Definition: The Price Elasticity of Demand is commonly known as the elasticity of demand which refers to the degree of responsiveness of demand to the change in the price of the commodity.
i. Perfectly Elastic Demand (E_p = \(\infty \)):
The demand is said to be perfectly elastic when a slight change in the price of a commodity causes an infinite. change in its quantity demanded. Such as, even a small rise in the price of a commodity can result in greater fall in demand even to zero. In some cases a little fall in the price can result in the increase in demand to infinity. In perfectly elastic demand the demand curve is a horizontal straight line parallel to x axis.

ii. Perfectly Inelastic Demand (E_p = 0)
When there is no change in the product due to the change in the price, then the demand is said to be perfectly inelastic. Here, the demand curve is a vertical straight line which shows that the demand remains unchanged irrespective of change in the price., i.e. quantity OQ remains unchanged at different prices, P₁P ₂, and P₃.

iii. Relatively Elastic Demand: (E_p > 1)
The demand is relatively elastic when the proportionate change in the demand for a commodity is greater than the proportionate change in Its price. Here, the demand curve is gradually sloping which shows that a proportionate change in quantity from 5 to 10 is greater than the proportionate change in the price from 11 to 10. Change in demand is: 10-5/5 x 100 = 100%
Change in price =10%. Hence, it is more elastic demand.

Relatively Inelastic Demand: (E_p < 1)
When the proportionate change in the demand for a product is less than the proportionate change in the price, the demand is said to be relatively inelastic. It is also called as the elasticity less than unity. Here the demand curve is steeply sloping, which shows that the change in the quantity from OQ₀ to OQ₁ is relatively smaller than the change in the price from OP₁ to OP_2.

v. Unitary Elastic Demand (E_p = 1):
The demand is unitary elastic when the proportionate change in the price of a product results in the same propionate change in the quantity demand here the shape of the demand curve is a rectangular hyperbola, which shows that area under the curve is equal to one. Here OP₀R ₀Q ₀= OP ₁R ₁Q ₁.
 

Introduction:
(i) The law of diminishing marginal utility was extended and is called Law of Equi marginal utility
(ii) Law of substitution or Law of consumer's Equilibrium or Gossen's II law or law of maximum satisfaction.
Definition:
Marshall, "If a person has a thing which he can put to several uses, he will distribute it among these uses in such a way that it has the same marginal utility in all. For, if it had a greater marginal utility in one use than another, he would gain by taking away some of it from the second use and applying it to first.
Assumption
(i) Consumer is rational and wants maximum satisfaction.
(ii) Utility is measurable in cardinal numbers.
(iii) Marginal utility of money is constant.
(iv) Income of the consumer is given.
(v) There is perfect competition.
(vi) Price is given.
(vii) Law of diminishing marginal utility operates
Explanation:
(i) The consumer has Rs. 11.
(ii) He wants to spend it on apple ( Rs 1 each) and orange (Rs. 1 each)
(iii) He will be in equilibrium only when he gets maximum satisfaction ie.
\(\mathrm{K}=\frac{\text { Marginal utility of apple }}{\text { Price of apple }}=\frac{\text { Marginal utility of orange }}{\text { Price of orange }}\)
If is \(\frac{\mathrm{MU_A}}{\mathrm{P_A}}\) less than \(\frac{\mathrm{MU_O}}{\mathrm{P_O}}\) he would transfer money from apple to orange till it is equal.
He should buy 6 units of apple & 5 units of oranges. He gets (92 + 58) = 150 units satisfaction.
\(\frac{\mathrm{MU_A}}{\mathrm{P_A}}=\frac{\mathrm{MU_O}}{\mathrm{P_O}}=\frac{4}{1}=\frac{4}{1}\)

Explanation:
(i) X axis shows amount of money spent
(ii) Y axis shows marginal utility of apple and orange.
(iii) If consumer spends Rs.6 on apple and Rs.5 on orange MU will be equal.
(iv) ie. AA₁ = BB₁ = 4 = 4. So he gets maximum utility.
Criticisms:
(i) Utility cannot be measured.
(ii) No consumer compares the utility and disutility from each unit of the commodity while buying it.
(iii) This law cannot be applied to durable goods.
Conclusion:
(i) The law of equi marginal utility is an improvement over the law of diminishing marginal utility because it can be used for many commodities consumed at the same time.

(i) Price fixation: Each seller under monopoly and imperfect competition has to take into account elasticity of demand while fixing the price for his product. If the demand for the product is inelastic, he can fix a higher price.
(ii) Production: Producers generally decide their production level on the basis of demand for the product.
(iii) Distribution: Elasticity of demand also helps in the determination of rewards for factors of production.
(iv) International trade: It helps in finding out the terms of trade between two countries. Terms of trade depends upon the elasticity of demand for the goods of the two countries.
(v) Public finance: It helps the government in formulating tax policies, For example, for imposing tax on a commodity.
(vi) Nationalisation: The concept of elasticity of demand enables the government to decide over nationalization of industries.

Classification of Goods :
Goods are broadly classified into three categories.

Necessaries: Goods which are indispensable for the human beings to exist in the world are called "Necessaries". For example, food, clothing and shelter.
Comforts: Goods which are not indispensable for life but to make our life easy, convenient and comfortable are called "Comforts". Example: TV, Fan, Refrigerator and Air conditioner.
Luxuries: Goods which are not very essential but are very costly are known as "Luxuries". Example: Jewellery, Diamonds and Cars. However, for people with higher income they may look necessaries or comforts.

Introduction: A shift in the demand curve occurs with a change in the value of a variable other than its price in the general demand function. Shifts in the Demand Curve: An increase or decrease in demand due to change in conditions of demand is shown by way of shifts in the demand curve.

On the left hand side of the diagram the original demand curve is d₁d₁, the price is OP₁ and the quantity demanded is OQ₁. Due to change in the condition of demand (change in income, taste or change in prices of substitutes or complements) the quantity demanded decreases from OQ₁ to OQ₂. This is shown in the demand curve to the left. The new demand curve is d₁ d₁. This is called decrease in demand.
On the right hand side of the diagram the original price OP₁ and the quantity demanded is OQ₁.
Due to changes in other conditions the quantity purchased has increased to OQ₂. Thus the demand curve shifts to the right d₁d₁. This is called increase in demand.