Index
The Demand Curve 1
The Demand Curve 2
The Demand Curve 3
The Laws of Supply and Demand - 4
The Laws of Supply and Demand - 5
A ''Contraction'' of Demand - 6
''Ceteris Paribus'' - 7
An ''Expansion'' of Demand - 8
Marginal Utility - 9
Marginal Utility - 10
Marginal Utility - 11
Marginal Utility - 12
Consumer Surplus - 13
Consumer Surplus - 14
Price Discrimination - 15
An ''Expansion'' of Supply - 16
An ''Expansion'' of Supply - 17
Market Equilibrium - 18
Market Equilibrium - 19
Market Equilibrium - 20
Movements of the Demand Curve - 21
Movements of the Demand Curve - 22
Movements of the Demand Curve - 23
Inferior Goods - 24
Movements of the Demand Curve - 25
Movements of the Supply Curve - 26
Movements of the Supply Curve - 27
Movements of the Supply Curve - 28
The Income Effect - 29
The Substitution Effect - 30
The Substitution Effect - 31
The Substitution Effect - 32
The Substitution Effect - 33
Complements - 34
Complements - 35
Review: Factors Effecting Demand - 36
Review: Factors Effecting Demand - 37
The Goals of Firms - 38
The Goals of Firms - 39
To: Elasticity

Consumer Surplus - 13

When you buy anything, the price you are willing to pay is equal to the utility (''satisfaction'') you gain from consuming the last unit of it. Sellers in the market do not know if this is the first, second or last unit you are willing to buy. Sellers meet many consumers every day, and they will try to sell as many units as they can; hence they will lower their prices to a level where they make a ''normal'' profit per unit.

Consumers gain a surplus, because the preceding units of the good are actually worth to them than the last unit. It easy to prove this. Let's say you are face with a monopoly supplier - you can't buy the good from anyone except one firm. Let's say you buy nine items per year of a good, at a price of $12 per unit. The total market value of your consumption is $12 per unit x 9 units = $108. Now, you may be willing to pay up to $24 for the first item, because the consumption of it will give a large amount of satisfaction (shown as the first red line).

The consumption of the second unit will give you a little less satisfaction (the second, smaller red line to the right of the first), so you may be willing to pay up to $22 for the second item. Each additional item yields a little less satisfaction than the preceding one, so the utility of each item steadiy decreases. Since the supplier does not know how many units you have already consumed, they will offer the goods at the market price of $12. Thus, you are actually gaining more ''utility'' from the consumption of the first and second units than you are actually paying for. The total utility you gain is the sum of these nine red lines (of which the first five are shown.)