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Consumer Surplus Formula:
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Consumer surplus is an economic measure of consumer benefit, calculated as the difference between what consumers are willing to pay for a good or service and what they actually pay. It represents the extra satisfaction or utility consumers receive when they pay less than they were willing to pay.
The calculator uses the consumer surplus formula:
Where:
Explanation: The formula integrates the difference between the demand curve and the market price from zero to the equilibrium quantity.
Details: Consumer surplus is a key concept in welfare economics, helping to measure economic welfare and the benefits of market transactions to consumers. It's used in policy analysis, antitrust cases, and to evaluate the efficiency of markets.
Tips: Enter the demand function in terms of Q (e.g., "100 - 2*Q"), the market price in dollars, and the quantity purchased. All values must be valid (price > 0, quantity > 0).
Q1: What is the relationship between consumer surplus and demand elasticity?
A: Generally, more elastic demand leads to smaller consumer surplus, while more inelastic demand creates larger consumer surplus.
Q2: Can consumer surplus be negative?
A: No, consumer surplus is always non-negative as it represents the benefit consumers receive from a transaction.
Q3: How does price change affect consumer surplus?
A: A price decrease typically increases consumer surplus, while a price decrease reduces it.
Q4: What are the limitations of consumer surplus calculation?
A: It assumes accurate knowledge of the demand function and doesn't account for income effects or changes in consumer preferences.
Q5: How is consumer surplus used in real-world applications?
A: It's used in cost-benefit analysis, antitrust regulation, tax policy evaluation, and measuring the benefits of public goods.