Consumer Surplus

Measuring the gain from buying

Consumer surplus (CS) is what buyers gain from a market: the gap between what they’d have been willing to pay (the height of the demand curve) and what they actually pay (the price), summed over all units bought.

With a linear demand curve \(P = A - Q\) and a market price \(P_0\):

• Quantity bought: \(Q_d = A - P_0\).

• CS = the triangle under the demand curve and above the price: \[CS = \tfrac{1}{2}(A - P_0)\,Q_d = \tfrac{1}{2}(A - P_0)^2\]

• Lower price → more CS (two ways: existing buyers pay less, and new buyers enter).

• The triangle’s top corner is the “choke price” \(A\) — above it, nobody buys.

Try it. Drop the price and watch the consumer-surplus triangle grow. Shift demand (A) to see willingness-to-pay change.

Demand intercept A (choke price): 30 Market price P₀: 10

What to notice

• Drop the price → the blue CS triangle grows: existing buyers pay less and new buyers come in.
• At P₀ = A (the choke price) CS = 0 — nobody buys. At P₀ = 0, CS is the whole area under demand.
• The grey rectangle is spending (P₀·Q); the blue triangle above it is the surplus buyers keep.