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Consumer Surplus

Definition

Consumer surplus refers to the difference between what consumers are willing to pay for a good or service and what they actually have to pay. It represents the extra benefit or value that consumers receive from purchasing a product at a price lower than their maximum willingness to pay.

Analogy

Imagine you're shopping for a new pair of sneakers, and you find your favorite brand on sale for $50 instead of the usual $100. The consumer surplus is like the joy and satisfaction you feel knowing that you saved $50 while still getting the shoes you wanted.

Related terms

Producer Surplus: Producer surplus is similar to consumer surplus but from the perspective of producers. It represents the difference between what producers are willing to sell a good for and what they actually receive.

Deadweight Loss: Deadweight loss occurs when there is an inefficient allocation of resources in a market, resulting in lost economic welfare.

Price Elasticity of Demand: Price elasticity of demand measures how responsive consumers are to changes in price. It helps determine whether demand is elastic (sensitive) or inelastic (insensitive) to price changes.