Consumer surplus is basically an economic measure of consumer benefit, which is calculated by analyzing the difference between what consumers are willing and able to pay for a good or service relative to its market price, or what they actually do spend on the good or service.
A consumer surplus occurs when the consumer is willing to pay more for a given product than the current market price.
When understanding consumer surplus, try to remember that a surplus is not good, or inefficient, just as a shortage is.
An example of a product that enjoys a consumer surplus is gasoline. Gas prices tend to be higher during the day because more people are on the roads. If you want cheap gas, you either fill up your car at night or go to a small town outside of the main city where it is cheaper.
However, if your car is about to run out of gas at mid-day, you won’t take into account that you are purchasing it above the best price possible because you need it to get home; this is consumer surplus.
Consumer surpluses benefit the producer – the oil companies – because you are paying more than the lowest possible price for that product or service; hence, why gas and energy providers charge more for their products during daytime hours.
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David McDonald
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