What are Consumer Surplus and Producer Surplus?
Consumer Surplus is the difference between the price that consumers are willing to pay, and the price that they actually pay. Similarly, Producer Surplus is the difference between the price for which producers are willing and able to produce a good, and the price that they actually receive. We can visualise this relationship on a Demand-Supply diagram. Consumer Surplus is the area above the Price line, and below the Demand curve. Producer Surplus is the area below the Price line, and above the Supply curve.
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