Cambridge International as and a level Economics Ebook

consumer surplus
.
Consumer surplus: 
the diff erence between the value 
a consumer places on units consumed and the payment 
needed to actually purchase that product.
KEY TERM
Consumer surplus arises because some consumers are 
willing to pay more than the given price for all but the last 
unit they buy. Th
is is represented in 
Figure 2.19a
where 
consumer surplus is the shaded area under the demand 
Quantity demanded
Q
1
0
P
1
Consumer surplus
E Market price
Quantity demanded
Q
1
0
New consumer surplus
E' New market price
P
2
P
1
E
Q
2
(b)
(a)
Price
Price
D
D
Figure 2.19 
Consumer surplus
63
Chapter 2: The price system and the microeconomy 

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curve and above the price line. More specifi cally, it is the 
diff erence between the total value consumers place on all 
the units consumed and the payments they need to make 
in order to actually purchase that commodity.
When the market price changes, then so does 
consumer surplus. For example, if the price increases, 
then consumer surplus is reduced as some consumers 
are unwilling to pay the higher price. Th
is reduction is 
shown in 
Figure 2.19b
. Th
e loss of consumer surplus is 
shown by the area 
P
1
P
2
E 
1
E
. On the other hand, a fall 
in the market price will lead to an increase in consumer 
surplus. Th
is is because consumers who were previously 
willing to pay above the new market price now end up 
paying less.