How to Measure the Consumer Surplus

If you got a good deal, that's a consumer surplus.

Consumer surplus is a concept in welfare economics that quantifies the benefits a consumer receives from participating in a market. When looking to buy something, a consumer is limited in his purchase by the maximum price he is willing to pay. It may be the case -- and often is -- that the consumer will find what he wants to buy at a market price below his maximum willingness to pay. In such a transaction, the consumer gets something that is more valuable to him than the money he exchanged for it. The difference in value is the consumer surplus.

Instructions

1. Determine the maximum price the consumer would willingly pay for a particular good or service. This price is the consumer's willingness to pay.

2. Figure out the price at which that good or service is currently available on the market.

3. Subtract the market price from the consumer's willingness to pay. The resulting figure is a measure of the consumer surplus that will be realized when the transaction is completed.

Tips & Warnings

• If the price of a good or service is greater than the consumer's willingness to pay for it, he will not buy it, and there can be no consumer surplus.

References

• "Principle of Macroeconomics: 4th Edition"; N. Gregory Mankiw; 2007