Consumer Surplus = Total Utility – Total Expenditure = Rs. 70 – Rs. 40 = Rs. 30

In the table, as the consumer consumes additional units of mangoes, the marginal utility derived from the later units decreases, so the price they are willing to pay for the later units also gradually decreases. The consumer is willing to pay Rs. 25 for the first unit of mangoes, and the marginal utility derived from it is also equal to Rs. 25. 

As they consume additional units of mangoes, the marginal utility gradually decreases, so they are willing to pay only Rs. 10 for the last, i.e., the fourth unit, because the marginal utility derived from it is also equal to Rs. 10. 

Here, the total utility derived by the consumer from consuming 4 units of mangoes is the sum of the marginal utility of the first, second, third, and fourth units of mangoes. 

Therefore, according to the table, the total utility derived by the consumer from 4 units of mangoes is equal to Rs. 70, and the total price they actually paid for 4 units of mangoes is Rs. 40.

Therefore, Consumer Surplus = Total Utility – Total Price Actually Paid = Rs. 70 – Rs. 40 = Rs. 30

Here, Rs. 30 is the consumer surplus. The concept of consumer surplus can also be clarified from the following graph:

In the graph, the x-axis shows the units of mangoes consumed, and the y-axis shows the marginal utility derived from the units of mangoes. 

The sum of both the shaded and unshaded areas in the graph represents the total price or total utility the consumer is willing to pay, while the unshaded area represents the total price the consumer actually paid. 

Subtracting the unshaded area (total price actually paid) from the total price or total utility the consumer is willing to pay (both shaded and unshaded areas) leaves the shaded area, which is the consumer surplus.

Importance of the Concept of Consumer Surplus

The concept/theory of consumer surplus is considered important from both practical and theoretical perspectives. The importance of the concept/theory of consumer surplus can be explained in the following points:

(a) To Differentiate Between Use Value and Exchange Value: The concept of consumer surplus is useful in differentiating between the use value and exchange value of a good. Use value refers to the potential price a consumer is willing to pay for a good, while exchange value refers to the actual price of the good. The utility of a good depends on its use value, while the price of a good depends on its exchange value. Therefore, when the concept of consumer surplus is introduced, a difference is seen between use value and exchange value.

(b) To Compare Economic Conditions Between Different Countries and Different Groups Within the Same Country: The concept of consumer surplus can be used to compare the economic conditions between different countries and different groups within the same country. People in developed countries have higher consumer surplus because they receive various government facilities as well as goods at cheaper prices. 

However, people in developing countries have lower consumer surplus because they receive goods at higher prices. Similarly, within the same country, higher consumer surplus in a particular group means that people in that group are willing to pay a higher price to obtain goods. This indicates the high economic status of the group. Conversely, lower consumer surplus in a group means that people in that group are willing to pay a lower price to obtain goods. This indicates the low economic status of the group.

(c) To Help the Government Formulate Tax Policy: The government formulates tax policy based on the concept of consumer surplus. Imposing higher taxes on goods with higher consumer surplus reduces consumer surplus, but the consumer or taxpayer does not feel the burden of the tax as much. In contrast, imposing higher taxes on goods with lower consumer surplus results in no consumer surplus. The price of the good increases, leading to unsold goods and uncollected taxes, and consumers may perceive the tax as a burden. Therefore, the concept of consumer surplus is considered useful for the government in determining taxes.

(d) To Help Monopolists Determine Prices: A monopolist is a producer or seller of a good if there is only one producer or seller, and there is no close substitute for the good they produce or sell in the market. Monopolists determine the price of their goods based on consumer surplus. They set a higher price for goods with higher consumer surplus and a lower price for goods with lower consumer surplus. Therefore, a monopolist producer or seller can maximize profit by producing more of a good with higher consumer surplus and selling it at a higher price.

(e) In the Field of International Trade: The concept of consumer surplus also provides a basis for international trade. If the consumer surplus is higher for goods imported from abroad than for goods produced domestically, it is considered good to import such goods. Similarly, if the consumer surplus for domestically produced goods is higher abroad than domestically, it is considered good to export such goods. In this way, countries can benefit by participating in international trade or by importing and exporting based on consumer surplus.