Consumer surplus is an economic concept that represents the difference between what consumers are willing to pay for a good or service and what they actually pay. It essentially measures the benefit or satisfaction that consumers receive when they purchase a product for less than the maximum price they are prepared to pay.
To understand consumer surplus better, consider a simple example: imagine you’re looking to buy a concert ticket. If you are willing to pay $100 for the ticket but find it available for only $70, your consumer surplus is $30. This means you gain additional satisfaction worth $30 beyond what you had to spend.
On a demand and supply diagram, consumer surplus is illustrated as the area between the demand curve and the horizontal line drawn at the market price. The demand curve shows the maximum price consumers are willing to pay at various quantities, while the market price reflects the actual price they do pay. The consumer surplus area is typically depicted as a triangle, where one point is at the market price, another at the vertical intercept of the demand curve, and the third point extends horizontally to the quantity purchased. This triangular area visually captures the aggregate surplus enjoyed by buyers in the market.