Consumer surplus is a basic concept in economics that describes the difference between an individual's willingness to pay for a good or service and the actual amount he must pay for the good or service. Consumer surplus measures how much an individual benefits from buying a good or service. The smaller the surplus, the more indifferent a person is to buying or not buying a good or service. A consumer surplus can be calculated for an individual, a group or an entire market.
Calculate Individual and Group Consumer Surplus
Enter the amount the individual would be willing to pay for the good or service into a calculator.
Subtract the price of the good or service. The result is the individual's consumer surplus. For instance, if you would be willing to pay $10 for a hot dog and you buy one for $3, your consumer surplus is $7.
Repeat Steps 1 and 2 for each individual in the group and add up the total surplus of all individuals to calculate the total consumer surplus for the group.
Calculate Consumer Surplus for Linear Supply and Demand Graph
Note the value of the point on a supply and demand graph where the demand line crosses the y-axis (the vertical axis on the graph). This is the y-intercept. This value signifies the most any consumer would be willing to pay for the good.
Subtract the price level from the y-intercept value noted in Step 1.
Multiply the result from Step 2 by the quantity of goods produced. This value will be indicated on the x-axis (the horizontal axis) and is often labeled "q."
Multiply the result from Step 3 by 0.5. This is the total consumer surplus.
If the price of a good is higher than an individual's willingness to pay, she will not purchase the good.
When the price of a good increases, the amount of the consumer surplus falls. On the other hand, the consumer surplus increases when prices fall.
- If the price of a good is higher than an individual's willingness to pay, she will not purchase the good.
- When the price of a good increases, the amount of the consumer surplus falls. On the other hand, the consumer surplus increases when prices fall.
Gregory Hamel has been a writer since September 2008 and has also authored three novels. He has a Bachelor of Arts in economics from St. Olaf College. Hamel maintains a blog focused on massive open online courses and computer programming.