Definition of Consumer Surplus
This is the difference between what the consumer pays and what he would have been willing to pay.
For example: If you would be willing to pay £50 for a ticket to see F. A. Cup final, but you can buy ticket for £40; in this case your consumer surplus is £10.
Diagram of Consumer Surplus
The demand curve shows the maximum price that a consumer would have paid. Consumer surplus is the area between the demand curve and the market price.
If the demand curve is inelastic, consumer surplus is likely to be greater
- Monopolies are able to reduce consumer surplus by setting higher prices
- Price Discrimination is an attempt to extract consumer surplus by setting.