Definition: Economic surplus is also known as total welfare or total surplus, it is a combination of consumer surplus and producer surplus in an economy, refers to two related quantities.
Consumer surplus: Consumer surplus is the difference between the consumer pays actually and what he would have been willing to pay .
Producer surplus: Producer surplus is the difference between the price a firm receives and the price it would be willing to sell it at .
For example :Mr.X wants to buy a activa scooty, but he is not willing to pay more than ₹85,000.He visits a activa showroom, while browsing around he sees a scooty which he thinks is ideal for his needs. Mr.X asks the salesperson the features about the scooty and he finds out that this would be best. The final price is ₹75,000 and Mr.X can have 5 years guarantee, good mileage . So Mr.X buys the scooty for ₹75000 although he was willing to pay maximum price of ₹85,000, Mr.X has consumer surplus of ₹10,000.
From the firm's perspective,the minimum selling price for the scooty was ₹60,000, eventually the firm sold the scooty for ₹75000.The firm has a producer surplus of ₹15,000.
The Economic surplus of this transaction is ₹10,000 + ₹15,000= ₹25,000.
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