# How to Calculate Consumer Surplus

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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.

#### Tips

• 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.