ABSTRACT

Welfare economics is a branch of microeconomics that seeks to estimate the social welfare of different scenarios in order to determine ways to maximize net social benefits. Welfare economics can be studied from both a theoretical perspective and a quantitative applied perspective. Consumers obtain a practical benefit from many purchases, such as nutrition by buying a meal or transportation by buying gasoline. In other cases, the benefits are less tangible, such as the enjoyment of listening to music or watching a movie. Of course consumers are rarely required to think about the exact maximum amount that they would be willing to pay for something. In the real world, consumers are normally presented with a price, and either they buy the product or they do not. So, at first glance, it seems that estimating consumer surplus quantitatively is not a realistic option.