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What is Consumer Surplus

What is Consumer Surplus?

Consumer Surplus is linked with welfare economics. We primarily focus on the economic well being of consumer/buyer when we talk about consumer surplus and welfare economics.

In simple terms, consumer surplus means the amount which the buyer is willing to pay for a good or a service minus the amount he/she actually pays for it. Like for example, if you visit your nearby market and are willing to spend 100$ on something but you eventually pay only 70$, then in this situation, the consumer surplus is 30$.

What is Consumer Surplus and What Does it Show?

As already said, consumer surplus is basically used to elaborate two things I.E number one the willingness of a buyer to pay for something and two the actual value that a buyers gives to it.  However, it has to be said that what is Consumer Surplus is not an easy concept to understand as it looks.

What is Consumer Surplus / Graphical Explanation?

What is Consumer Surplus

What is Consumer Surplus

In the above figure, you can see that there are different points shown. The point B (P1) is the actual price that a buyer pays for something. It could be anything. So there is no need to remain confused about what type of products could fit into this model.   However, the buyer initially was willing to pay the price at point A. So in order to show what is consumer surplus in the figure, we will highlight the region between point C, B and A.

The use of the graphical explanation when it comes to understanding what is consumer surplus is highly important because sometimes, we are not supposed to work with numerical figures. In such a case, we are supposed to show the concepts through graphical explanations. Though it is extremely easy to calculate what is consumer surplus when numerical values are given but the catch is to fully understand and grasp the graphical concepts.

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