The consumer surplus calculator measures the benefits a consumer is getting by analyzing the difference between the consumer paying for a product and what he is getting in return.
The companies are in search of getting the consumer surplus as it is a win-win situation for both the company and the customer.
The consumer surplus is essential to the measure the benefits for both the consumer and the producer
“The consumer surplus is the difference between the price the consumer pays, and what is the maximum price they are willing to pay due to the extra benefits the consumer is receiving”.
The consumer surplus is only possible if a brand is offering a better product quality. Consumers are measuring the values of the product against the product price they are paying. The consumer surplus is only possible if the customer is fully satisfied with a product. Brands are always striving for the consumer surplus, but only top brands are able to surpass the consumer surplus.
You may be wondering how to calculate consumer surplus. According to the consumer supra definition, we have already figured out how to find consumer surplus.
The consumer surplus equation can be written as:
Consumer surplus = maximum price willing to pay - actual market price.
The consumer surplus formula to estimate the consumer surplus, and how to calculate total surplus for the whole economy is as follows:
Extended Consumer Surplus = 0.5 * Qd - Pmax - Pd
This formula is used in the advance mode of the consumer surplus calculator
Where:
Qd=Quality demand at the equilibrium, where demand and supply are equal.
Pmax=the maximum price the buyer is willing to pay
Pd=The price at equilibrium, where the demand and supply are equal
We can draw the values of the consumer surplus by inserting the values of the quantity consumed, the marginal utility, and the market price. The table below explains the concept of the marginal utility and the formula for consumer surplus.
| Quantity Consumed | Marginal Utility | Market Price | Consumer Surplus |
| 1 | 50 | 10 | 40 |
| 2 | 40 | 10 | 30 |
| 3 | 30 | 10 | 20 |
| 4 | 20 | 10 | 10 |
| 5 | 10 | 10 | 0 |
| 5 units | 150 | 50 | 100 |
The consumer surplus is based on the Marginal Utility concept of economics, the theory states the satisfaction of a consumer derives from utilizing one more unit of that product. The satisfaction level varies in different consumers due to personal preferences.
Personal preference theory:
Personal preference theory is crucial to understanding the concert of the consumer surplus, as it states:
“The more a product is used by the customers, the less the consumer is willing for that product.”
The main reason for decreasing demand for the product is decreasing marginal utility drive of the product.
If you plot the graph between Price(P) versus quantity(Q), then we can represent the Consumer surplus. The supply and demand relationship can be explained. We need to understand that lowering the prices of products would increase the demand for the product. The supply curve would be on the higher side as the manufacturers would produce more products if they can sell the product at a higher price. The consumer surplus graph is the area between the equilibrium price and the demand curve.
We can find the consumer surplus formula from the consumer surplus graph. For getting the consumer surplus formula from the graph, consider the point where the demand and the supply meet is known to be the equilibrium price. The area above the supply level and just below the equilibrium price is called the producer surplus. The area below the demand level and above the equilibrium price is the considered surplus for the brand.
While taking into consideration the consumer surplus graph, we can find the consumer surplus for a given product.
In the above consumer surplus graph, the consumer surplus equation can be determined by the applying the values in the formulas of the area of the triangle:
Consumer Surplus formula=½(base)(height)
CS=(40)(70-50)=400
The consumer surplus calculator provides the same value of the consumer surplus.
We need to understand the Consumer product is Zero when the demand for the product is perfectly elastic. When the demand for a product is perfectly inelastic, the consumer surplus would be infinite at this point the change in the price has no effect on the demand. This applies to the product which are basic necessity products like milk, water, flour, etc,
The demand curve is usually in the downward direction as the demand for a product is usually affected by its price.
“The law of diminishing marginal utility states the more the consumer uses the product the less drive it would have for the product.”
For Example:
If you are purchasing an apple for $1, then the consumer would not be willing to pay more for the second apple. We need to understand the utility drive of consuming the second apple would be lower than for the first apple.
The consumer surplus formula according to the marginal utility concept can be written as:
Consumer Surplus = Total Utility – (Price x Quantity)
Calculating consumer surplus is simple and efficient when using the total surplus calculator:
Input:
Output:
The total surplus calculator showing the following results:
The consumer surplus is based on the marginal utility theory, which describes the additional benefits that increase the thrust of the product in consumers. The economic surplus calculator is going to provide you with information about the best price for a product considering the consumer surplus.
The consumer surplus increases when the product prices increase and decrease when prices increase. The consumer surplus has an inverse relation with the price. The consumer surplus calculator can provide you insight into which price is best for a product considering the consumer surplus.
The consumer surplus can be reduced if the product is in high demand in the marketplace by increasing the prices. The consumer surplus at equilibrium provides equal benefit to both the consumer and the producer.
Consumer surplus can only be infinite if the demand curve is inelastic(consistent) with the passage of time. An infinite surplus can’t be possible so demand can never be consistent.
If the consumer surplus changes readily due to another economic factor, then we call the consumer surplus elastic and vice versa.We can find whether our consumer surplus is elastic or inelastic by the consumer surplus calculator
There are many examples of the consumer surplus in real life, if you are willing to pay $ 100 for Nikkie shoes, but get it for $ 80. Then by calculating the consumer surplus with the consumer surplus calculator. We find the consumer surplus is $20.
You need to calculate consumer surplus for determining which price is suitable for a product or service. The companies like the prices at equilibrium, so they can manage the demand and supply of a product. The consumer surplus calculator is better to estimate which process is best for a particular product or a service.
From the source of the investopedia:What Is Elasticity?, How Elasticity Works
From the source of the corporatefinanceinstitute.com:Consumer Surplus Formula,Consumer Surplus on a Larger Scale
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