What is consumer surplus?

Consumer surplus refers to the economic benefit that consumers receive when they purchase a product at a market price that is lower than the maximum price they are willing to pay. This surplus represents the difference between the highest price a consumer would pay for a good or service and the actual market price they pay.

When consumers value a product more than its market price, they gain additional satisfaction or utility from the transaction. This can be illustrated with a demand curve, where the area above the market price and below the demand curve captures the consumer surplus for all buyers in the market.

Understanding consumer surplus is crucial for analyzing market efficiency and the effects of pricing policies, subsidies, or taxes. It helps to illustrate the welfare benefits that consumers receive in a market economy, showcasing the value they derive beyond what they pay.

The other options do not convey this fundamental concept: the total cost incurred by buyers does not account for surplus value, the additional payment above market price reverses the idea of surplus, and price reductions post-tariff pertain to different economic principles.