Consumer surplus is the amount that consumers benefit by being able to purchase a product for a price that is less than the highest price they are willing to pay for it. In other words, it is the difference of the willing-to-pay price and the actual-paid price.
Consumer surplus is a type of economic surplus, measuring the well-being derived from the consumption of goods and services.
In a simple calculation,
Consumer surplus = Value to buyers – Amount paid by buyers
The goal of developing the concept of consumer surplus is to make normative judgments about the desirability of market outcomes. In the respect of consumer preferences and rationality, economists presume that buyers themselves are the best judges of how much benefit they receive by purchasing the goods at a price lower than their highest-willing-to-pay-price. And this is true in most markets. However with goods like addictive drugs, policymakers will often impose a strong regulation on consumer preferences even they themselves personally are willing to pay at a high price for heroin. From a standpoint of society, willingness to pay, or consumer surplus under such circumstances is not a good measure of the buyers’ benefit and in turn, not a good measure of economic well-being.
Consumer surplus is mathematically abstracted from the demand curve in the theory of supply and demand.
Please refer to utility.