For all the products and the services available in the market consumers make a rough estimation of the price. This is known as reservation price of the product or the service. If consumers are able to get the products and the services below their reservation prices then it is known as consumers' surplus. For example, if you think that a specific product would be around $10 and the prices in the market fall because of excess supply and you can get the product in $8. In this case your surplus will be $2. The graph will further clarify you about consumers' surplus.
Consumer surplus refers to the positive difference between what the consumer is willing to pay for a good and what he is actually required to pay. Graphically speaking, it is the area between the downward sloping marginal utility curve and the horizontal price line.
Consumer surplus is the net benefit which the consumers get by the consumption of goods or services in exchange of money. It is the difference between the price which consumers are willing to pay and the actual price of the product or service. The price which consumers are willing to pay is known as reservation price and if actual price is less than the reservation price of the consumers then it means that consumers have achieved more than what they were willing to pay. This saving of consumers is known as consumer surplus. Another related concept is the producer surplus. If the actual price is greater than the reservation price of the producers then it is known as Producer surplus.
It means that there are a surplus of products given the level of demand. In other words, let's say there demand for iPads at $500 is 500 units, but the company has 1,000 units. The 500 units left over is considered consumer surplus. In order to get rid of the surplus, then lowering the price will correspond with a rise in demand (run,rise of the curve).
It's the amount that a consumer benefits from in a transaction, in buying a good or service.
The idea is that before you say what the consumer's benefit is, you have to take into account their costs. Hence, consumer surplus is net profit, not gross benefits.
Imagine I spend £5 travelling somewhere to see a concert, and then another £15 for tickets. Then the whole experience is worth at least £20 to me (obviously). If you measure the costs for everybody who attends the concert, you can construct a demand curve and calculate the average net profit (consumer surplus) for everybody (using finite integration). This becomes the typical consumer surplus.
It's also sometimes termed "welfare surplus", because obviously I must feel that my welfare has improved by that kind of amount, on average, or I wouldn't have bothered spending the money to get that service / good / experience.
The paradox of value emphasizes that the recorded money value of a good may be very misleading as an indicator of the total economic value of that good. The measured economic value of the air we breathe is zero, yet air's contribution to welfare is immeasurably large. The gap between the total utility of a good and its total market value is called consumer surplus. The surplus arises because we receive more than we pay for as a result of the law diminishing marginal utility. We have consumer surplus basically because we pay the same amount for which unit of a commodity that we buy, from the first to the last. We pay the same price for each egg or glass of water. Thus we pay for each unit what the last unit is worth. But by our fundamental law of diminishing marginal utility, the earlier units are worth more to us than the last. Thus, we enjoy a surplus of utility on each of these earlier units. An individual consumes water, which has a price of $1 per gallon. The consumer considers how many gallon jugs to buy at that price. The first gallon is highly valuable, slaking extreme thirst, and the consumer is willing to pay $9 for it. But this first gallon costs only the market price of $1, so the consumer has gained a surplus of $8.
Producer surplus refers to the sale of a seller the price of goods or services minus the cost of the seller. Such as movie film offers a cost 5 yuan to 20 yuan fare, then the producer surplus is 15 yuan. Producer surplus is the corporate producers receive more than its cost of production gains created by the enterprise workers.
Consumer surplus is an increasing income to ensure the consumer when they have any business. The difference or you can say the profit between the consumer price and actual price. If some willingly pay more than the actual price, the benefit there is the transaction in which they have to tell that how much they saved without paying any price. Suppose you have a product, a person wants to buy by paying incredible amount; however there are similar products in the market in fewer prices. The different between these two prices is called consumer surplus. Consumer's surplus is not linked with that type of surplus which takes place in the market when price is above in the market clearing price. So simply we can say the profit earn by a person which is greater than the actual price of the product is called consumer surplus. Surplus means the profit and consumer is the person who is taking that profit. It is a term which is used in economics or in economic activity and human labor was the source of economic value. It is also related to the demand and supply function. When demand increase there should be increase in supply and it leads towards the surplus of the consumer and with this surplus the economic value also increase.
