•Consumer surplus is the buyer’s willingness to pay for a good minus the amount the buyer actually pays for it.
Table 1 Four Possible Buyers’ Willingness to Pay
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CONSUMER SURPLUS
•The market demand curve depicts the various quantities that buyers would be willing and able to purchase at different prices.
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The Demand Schedule and the Demand Curve
Figure 1 The Demand Schedule and the Demand Curve
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Price of
Album
0
Quantity of
Albums
Demand
1
2
3
4
$100
John
’
s willingness to pay
80
Paul
’
s willingness to pay
70
George
’
s willingness to pay
50
Ringo
’
s willingness to pay
Figure 2 Measuring Consumer Surplus with the Demand Curve
Copyright©2003 Southwestern/Thomson Learning
(a) Price = $80
Price of
Album
50
70
80
0
$100
Demand
1
2
3
4
Quantity of
Albums
John
’
s consumer surplus ($20)
Figure 2 Measuring Consumer Surplus with the Demand Curve
Copyright©2003 Southwestern/Thomson Learning
(b) Price = $70
Price of
Album
50
70
80
0
$100
Demand
1
2
3
4
Total
consumer
surplus ($40)
Quantity of
Albums
John
’
s consumer surplus ($30)
Paul
’
s consumer
surplus ($10)
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Using the Demand Curve to Measure Consumer Surplus
•The area below the demand curve and above the price measures the consumer surplus in the market.
Figure 3 How the Price Affects Consumer Surplus
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Consumer
surplus
Quantity
(a) Consumer Surplus at Price
P
Price
0
Demand
P1
Q1
B
A
C
Figure 3 How the Price Affects Consumer Surplus
Copyright©2003 Southwestern/Thomson Learning
Initial
consumer
surplus
Quantity
(b) Consumer Surplus at Price
P
Price
0
Demand
A
B
C
D
E
F
P1
Q1
P2
Q2
Consumer surplus
to new consumers
Additional consumer
surplus to initial
consumers