Consumer Surplus

Consumer Surplus 

Definition: Consumer Surplus is a measure of the welfare that gain from consuming goods and services. 

Consumer surplus is defined as the difference between the total amount that consumers are willing and able to pay for a good or service and the total amount that they actually do pay. It is shown by the area under the demon car and about the price.

Example:The shopper is determined to buy a laptop with a certain specifications and is willing to spend up to Rs.30,000. As she browses through various electronic stores she finds one for the Rs.25,000 that meets all her extra criteria saving her Rs.5000 compared to what she was willing to spend. The Rs.5000 is her consumer surplus, which she can now save or spend on other good or services. 

Formula: There is an economic formula that is used to calculate the consumer surplus i.e.

by taking the difference of the highest they would pay and actual price they pay. 

  Consumer surplus = maximum price willing - Actual price