Consumer Surplus
- This is the difference between the price a consumer is willing to pay and the price he actually pays.
- For example if you were willing to buy a computer game for £50, but can buy it for £15 in the sales your consumer surplus is £35
Diagram Consumer and Producer Surplus
- Consumer Surplus is therefore the difference between the demand curve and the market price.
- We can also explain consumer surplus by using marginal utility. This is the utility you gain from consuming an extra unit of a good. If the Marginal utility is greater than the price, the difference is your consumer surplus.
- The demand curve is derived from our marginal utility. (see: marginal utility theory)
A Person's Consumer Surplus from Petrol
In the above diagram, at Q 500 litres, the MU is 80p > than the price = 50p.
Producer Surplus
- This is the difference between the price a firm receives and the price it would be willing to sell it at.
- Therefore it is the difference between the supply curve and the market price
Essays and Revision Notes on Supply and Demand
- Demand
- Supply
- Market Equilibrium
- Price Mechanism Long Term
- Demand and Utility
- Consumer and Producer Surplus
Elasticity
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