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The consumer's surplus is highest at the largest number of units for which, even for the last unit, the maximum willingness to pay is not below the market price. Consumer surplus can be used as a measurement of social welfare, shown by Robert Willig. [8] For a single price change, consumer surplus can provide an approximation of changes in welfare.
Income is shown on the horizontal axis and the quantity demanded for the selected good or service is shown on the vertical. The attached figure shows the derivation process of the Engel curve in case of necessities. Panel (a) is an undifferentiated graph representing consumers' preferences for goods X and Y. The three parallel lines of Rs.300 ...
When a firm with absolute market power sets the monopoly price, the primary objective is to maximize its own profits by capturing consumer surplus and maximizing its own. A monopoly accomplishes this by setting a price above its marginal cost and producing at a quantity that meets market demand and corresponds to the set price
In a competitive market, everything above the horizontal line at Pc would be consumer surplus, and everything below, producer surplus. The monopolist pushes up the price (from Pc to Pm), reducing consumption (from Qc to Qm) but capturing some of the consumer surplus. The remaining consumer surplus is shown in red; the enlarged producer surplus ...
The consumer surplus (if you look at the graph) is the difference between the purchase price (what consumers pays) and the price they were willing to pay (like if every item was auctioned off) – so the difference is the surplus! In aggregate (like the math tells us), it the sum of all the individual surpluses.
English: An illustrative supply/demand graph, showing a price floor that has caused a market surplus (shaded in light blue). Line D (red) represents the demand (price vs. quantity demanded), line S (blue) represents the supply (price vs. quantity supplied), point E (black) is the equilibrium point, and line F (green, dashed) represents the price floor.
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In the first graph at right, the dashed green line represents a price floor set below the free-market price. In this case, the floor has no practical effect. The government has mandated a minimum price, but the market already bears and is using a higher price. An effective, binding price floor, causing a surplus (supply exceeds demand)