2.5.1—Consumer surplus

Consumer surplus is the extra benefit buyers receive when they pay less than the maximum price they were willing to pay. On a standard demand diagram it is the area below demand and above market price up to quantity traded.

A price fall usually increases consumer surplus through a gain on existing units and access to additional units, while a price rise reduces it.

If a buyer would pay £10 for a ticket but pays £7, their surplus is £3; summing across buyers gives market consumer surplus.

Consumer surplus is not the firm’s revenue and does not measure every aspect of welfare or fairness.