Consumer surplus
Also called: producer surplus, economic surplus
Consumer surplus is the difference between what buyers would be willing to pay and what they actually pay. Producer surplus is the difference between what sellers receive and the lowest price they'd accept.
Together they make up total surplus, the gain from trade. A competitive market at equilibrium makes total surplus as large as possible.
Example
If you'd pay up to $10 for a ticket and buy it for $6, your consumer surplus is $4.
Related terms
- Deadweight loss: Deadweight loss is the value lost to society when a market produces less (or more) than the efficient quantity, often because of a tax, price control or monopoly.
- Market equilibrium: Market equilibrium is the price at which the quantity buyers want equals the quantity sellers offer, so there's no shortage or surplus.
- Supply and demand: Supply and demand is the model that explains prices: when more people want something than is available, its price rises; when more is available than people want, its price falls.
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