LOS 14b Distinguish between the price and the value of a product and explain the demand curve and consumer surplus

The difference between the total value to consumers of the units of a good that they buy and the total amount they must pay for those units is called consumer surplus. In Figure 2, this is the shaded triangle. The total value to society of 3,000 tons of steel is more than the total amount paid for the 3,000 tons of steel by an amount represented by the shaded triangle.

Figure 2: Consumer Surplus

Figure 2: Consumer Surplus

We can also refer to the consumer surplus for an individual. Figure 3 shows a consumer's demand for gasoline in gallons per week. It is downward sloping because each successive gallon of gasoline is worth less to the consumer than the previous gallon. With a market price of S3.00 per gallon, the consumer chooses to buy 5 gallons per week for a total of $15. While the first gallon of gasoline purchased each week is worth $5.00 to this consumer, it only costs $3.00, resulting in consumer surplus of $2.00. If we add up the maximum prices this consumer is willing to pay for each gallon, we find the total value of the 5 gallons is $20. Total consumer surplus for this individual from gasoline consumption is 20 - 15 = $5.

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