CONSUMER SURPLUS AND PRODUCER SURPLUS

Consumer Surplus

Consumer surplus defined as the difference between the price consumer willing to pay and the consumer actually pays.

Producer Surplus

Producer surplus defined as the difference between the price producer is willing to sell and the price he actually sells.

Ex-

Ram wants to buy a pair of shoes which is in the range between 800 to 1200 rupees. But the cost of the shoe is 1899 rupees. So Ram starts bargaining starting from 700 rupees. And at last convince the shop keeper with 1100 rupees. Here the manufacturer cost of the shoe is 700 and the wants to sell it above 700 for his profit.
So here
1200 - 1100 = 100 is the consumer surplus and
1100 - 700 = 400 is the producer surplus.

From the above example it shows that consumer surplus measures the benefits of a buyer after buying the product. And the producer surplus measures the benefit seller receives after selling the product.