What is the formula for determining total surplus?

The correct answer is based on the definition of total surplus, which is a measure of economic efficiency in a market. Total surplus is calculated as the difference between the total benefits received by consumers and the total costs incurred by producers.

When consumers purchase goods and services, they derive a certain level of benefit or value from their purchases, which is represented by their willingness to pay. On the other hand, producers supply these goods and services at certain costs. By subtracting the total cost to sellers from the total value to buyers, you effectively assess how much net benefit is being created in the market. This net benefit is what we refer to as "total surplus."

In summary, total surplus captures the overall economic welfare created by market transactions, illustrating the combined benefits to consumers and producers in a given market. This understanding is integral in discussions about market efficiency, resource allocation, and overall economic health, highlighting the relevance of consumer and producer behavior in determining market outcomes.