Consumer surplus is graphically represented as the triangular area between the demand curve and the market price line on a supply and demand graph. Specifically, it is the area above the market price and below the demand curve, up to the quantity purchased. This area illustrates the difference between what consumers are willing to pay for a good or service and what they actually pay
. To visualize it:
- The vertical axis shows price.
- The horizontal axis shows quantity.
- The demand curve slopes downward, reflecting that consumers are willing to pay less for additional units.
- The market price is a horizontal line at the equilibrium price level.
- Consumer surplus is the area between the demand curve and this price line, forming a triangle.
Mathematically, consumer surplus can be calculated as:
Consumer Surplus=12×base×height\text{Consumer Surplus}=\frac{1}{2}\times \text{base}\times \text{height}Consumer Surplus=21×base×height
where the base is the quantity sold, and the height is the difference between the maximum price consumers are willing to pay (where the demand curve intersects the price axis) and the market price
. In summary, consumer surplus is the triangular area under the demand curve and above the market price line, representing the net benefit to consumers from purchasing at the market price rather than their maximum willingness to pay.
