Consumer surplus can be described as the difference between the maximum amount a consumer is willing to pay and the actual amount they pay.
Formula to calculate consumer surplus.
A student wanted to buy a blue leather bag, the maximum amount she was willing to pay was Sh. 1500, luckily she found a bag with the same qualities but it was being sold at Sh. 1000. Determine the consumer surplus.
Therefore, the consumer surplus was Sh. 500.
Formula to calculate consumer surplus from supply and demand.
In this case, the surplus is the area under the demand curve but above the horizontal line at the actual price (equilibrium price).
The shape under the demand curve but above the actual price is a triangle.
Therefore to determine the consumer surplus, we find the area of the triangle.
Find the consumer surplus from the demand curve below.
Therefore, the consumer surplus amounts to Sh. 200,000.