What is consumer surplus?

Consumer surplus is defined as the difference between what consumers are willing to pay for a good or service and what they actually pay. This economic concept highlights the benefit consumers receive when they purchase a product for less than the maximum price they are willing to pay.

For instance, if a consumer is willing to pay $100 for a pair of shoes but finds them on sale for $80, the consumer surplus in this scenario is $20; this amount represents the extra benefit the consumer gains from the transaction. It is an important measure because it reflects the economic well-being of consumers and shows how much value they derive from purchasing goods at lower prices than anticipated.

This understanding of consumer surplus is crucial for analyzing market efficiency and consumer behavior in the realm of economics, as it can influence decisions on pricing, production, and consumer satisfaction.