Consumer surplus introduction | Consumer and producer surplus | Microeconomics | Khan Academy

Consumer surplus as difference between marginal benefit and price paid

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In the last video, we
saw how you can actually

view a demand curve as actually
a marginal benefit curve.

That for any given the
quantity of the good you're

selling, that that
point on the curve

is actually showing
the marginal benefit

for that incremental unit.

So this is a marginal
benefit for that first unit.

This is the marginal benefit
for that second unit.

And there's multiple ways
that you could view this,

assuming that we're talking
about this new car here.

Maybe if you're going
to only sell one unit,

someone really wants it really
bad, the benefit for them,

the marginal benefit for
that first unit for them,

is going to be $60,000.

Now, let's say if you
want to sell two units,

that second unit might be
bought by that same person.

And they might say, well,
I already have one car.

The benefit of getting that
second one's only $50,000.

That's the point at
which I am neutral.

That's the point at which I'm
right on the fence of willing

to buy that car.

Or it might be another person,
another person who's just not

as enamored as the first
person, who says, OK,

for $50,000 I do like that car.

And then for the third, the
third person there, once again,

they're not as enamored
as the first two,

they would be willing
to buy it for $40,000.

And what we saw is
at some point you

could say, look, let's say that
we decide that the price ends

up being-- for whatever
reason-- $30,000.

And so when the
price is $30,000--

and this is kind of viewing it
in the traditional notion of,

at a price, what quantity
were you selling it.

But when you think about
that reality, what's actually

happening is that this fourth
person is right on the fence.

Their marginal benefit
is exactly $30,000.

So in their mind,
they're saying,

I am giving away $30,000.

And in exchange for that
I'm getting something

that is worth $30,000.

So it's kind of
like, hey, will you

be willing to trade this
dollar for a dollar?

Well, you probably would be
kind of on the fence about that.

You're very close
to going either way.

You feel like it's a good
deal if you could get it

for maybe a penny less.

It's a bad deal if you're
getting it for a penny more.

So right on the
fence, but you're

going to just barely
get this fourth person

to transact at this price.

But what we hinted
at is if you do

have one price for everybody--
in the future we'll

talk about not having
one price for everybody--

but if you did have
one price for everyone,

these first units
were kind of sold

below where they
could have been sold.

They were sold below
their marginal benefit.

So remember, we're
viewing this same demand

curve we're now viewing as
a marginal benefit curve.

So this first unit
right over here,

it could have been
sold at $60,000.

But now, we're selling
it for $30,000.

So this right over
here, this was $30,000.

I'll just write 30 for $30,000.

The marginal benefit is $30,000
higher than the actual price.

The marginal benefit
of that unit,

the benefit that the
market got out of it

is $30,000 higher
than the price.

The marginal benefit
for the second unit

is $20,000 higher than the
price at which the product is

being sold.

The marginal benefit
for this third unit,

assuming this is
$40,000, is $10,000.

Or another way to
think about it is,

the consumer surplus for
this first unit was $30,000.

The consumer's got $30,000 more
in benefit, marginal benefit

for them and value
for themselves,

than they had to pay for it.

Here, the consumer
surplus was $20,000.

The consumer got
$20,000 more in value

than that second consumer
was willing to pay for it.

And here is $10,000.

And then this fourth
consumer is neutral.

The marginal benefit is
what they paid for it.

And so when you
think about this,

you can say, well, what's the
total consumer surplus here?

Let me write this down.

What is the total
consumer surplus?

And another way of
thinking about it

is, what is the total
excess of marginal benefit

above and beyond the price paid?

So how much surplus
marginal benefit

did they get, if you
take out the price paid?

And over here, the
total consumer surplus

is going to be the $30,000
for that first unit,

plus the $20,000 for
that second unit,

plus the $10,000
for that third unit.

And so the total
consumer surplus

in this scenario when we
sold four units at $30,000

is-- And we're assuming
we're selling cars here.

So we can't sell
parts of cars here.

We can't sell 1.1 cars.

I guess if we're talking about
averages, maybe we could.

But let's just say we're selling
just whole numbers of cars

here.

The total consumer surplus in
this situation was 30 plus 20

plus 10, which is $60,000.

Everything's in thousands.

So this is $60,000.

So in this scenario,
in that week,

the consumers would get $60,000
more in benefit for them,

in perceived benefit for
them, than what they actually

had to pay for it.

And if you think about
it, it's a little

unideal for the seller, because
they were selling something

at a lower price than maybe
what they could have gotten

from at least these
first few consumers here.

And that was because they,
just really based on the model

that we have here, they
just had to set one price.