Consumer Surplus
The benefit consumers gain when they pay less than the maximum they were willing to pay.
Formula
Variables
Example
Triangle with $10 gap × 200 units: CS = $1000
How it works
Consumer surplus measures the extra value buyers receive when the market price is below the highest price they would have been willing to pay. For many demand curves, this gain is represented by the area between the demand curve and the market price line, which is a triangle when demand is linear. The formula works because that triangular area equals one-half times the vertical gap in prices times the horizontal quantity purchased.
When to use it
Use this formula when the demand curve is approximately linear and you know the market price along with the maximum willingness to pay at that quantity. It is common in welfare analysis, pricing policy, taxation, subsidies, and market equilibrium problems in microeconomics.
Worked example, step by step
Suppose a product sells at a market price of $40, but the demand curve shows that the highest willingness to pay at the relevant quantity is $70. Step 1: Find the price gap. ΔP = $70 - $40 = $30 Step 2: Find the quantity sold. ΔQ = 120 units Step 3: Apply the formula. CS = 1/2 × ΔP × ΔQ CS = 1/2 × 30 × 120 CS = 15 × 120 CS = $1,800 Final answer: Consumer surplus = $1,800.
Common mistakes to avoid
- Using total revenue instead of the area between willingness to pay and market price
- Forgetting that ΔP is a vertical price difference, not a percentage change
- Applying the triangle formula when the demand curve is not linear without checking whether the area approximation is valid
Did You Know?
Consumer surplus is the area between the demand curve and the price — a core measure of market welfare.
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