Consumer Surplus (CS) is a monetary measure of extra pleasure and welfare gained from consumers purchase of a quantity of goods, beyond that of the price of which they were willing to pay for good. More simply, it is the difference between the maximum amount consumer would be willing to pay for a certain quantity of goods and their total expenditure, or the total of how much the consumer paid as a whole for the goods
Inputs
Suppose the demand curve of a particular good is represented by the linear equation, Qd = A – Bp, where A represents the intercept of the demand curve, B represents the slope of the demand curve, and p represents the price of the good. For example, if the demand curve for corn can be represented by the linear equation,
Qd = 500 - 6p
and the price of corn is determined to be, p = $15, under the given supply and demand conditions.
The following would be inputted into the equation calculator above to determine the consumer surplus for this particular good;
| A | 500 |
|---|---|
| B | 6 |
| p | 15 |
Explanation
In order for consumers purchase a certain quantity of goods, its market price must be equal to or below that of their total willingness to pay for the good, or the maximum price they would pay for the goods. Often the market price of goods are often below that of the maximum price consumers are willing to pay, meaning they have money left to spend elsewhere. Changes in price and supply affect this amount and results in changes in the surplus funds available to consumers for other expenditures.
Using the calculator above, you are able to calculate the consumer surplus for the above linear demand curve. In inputting the numbers above we get that consumer surplus (CS) is equal to $14008.
References
Perloff, Jeffrey. Microeconomics. Boston, MA: Pearson Education, 2011. Print.