Consumer Surplus
IntermediateConsumer surplus is the difference between the maximum amount a buyer is willing to pay for a good and the price they actually pay. It measures the extra benefit buyers receive from a purchase.
Different people value the same product differently. If you would happily pay 10 for a cinema ticket but it only costs 6, you gain 4 of extra benefit. That 4 is your consumer surplus.
Across a whole market, consumer surplus adds up all these individual gains. On a supply and demand graph, it is the area below the demand curve and above the market price, up to the quantity bought.
Consumer surplus changes with prices. If the price of a product falls, existing buyers gain more surplus, and new buyers who were not willing to pay the old price enter the market and gain surplus too. If the price rises, consumer surplus shrinks.
The concept is used to judge the effects of policies and business practices. A tax that raises prices reduces consumer surplus. Competition that lowers prices increases it. Some businesses try to capture consumer surplus through price discrimination, charging different prices to different customers according to how much they are willing to pay, as airlines do with ticket pricing.
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