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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 on those sneakers.

Related terms

Producer Surplus: This term refers to the difference between what producers receive from selling a good or service and the minimum amount they are willing to accept. It represents the extra profit or benefit that producers gain.

Elasticity of Demand: This term measures how responsive consumers are to changes in price. If demand is elastic, small changes in price will result in larger changes in quantity demanded.

Price Ceiling: A price ceiling is a government-imposed limit on how high prices can be charged for certain goods or services. It is usually set below the equilibrium price, leading to shortages.