How a Lower Price Consumer Surplus

Because buyer always want to pay less for the goods they buy a lower price makes buyers of a good better off. But how much does buyers well-being rise in response to a lower price? We can use the concept surplus to answer this question precisely.

You may notice that this curve gradually slopes downward instead of taking discrete steps as in the previous two figures.In a market with many buyers the resulting steps from each buyer dropping out are so small that they form in essence a smooth curve. Although this curve has a different shape the ideas we have just developed still apply. Consumer surplus is the area above the price and below the demand curve. In consumer surplus at a price of is the area of triangle.

Now suppose that the price falls from. The consumer surplus now equals area ADF. The increase in consumer surplus attributable to the lower price is the area.

The increase in consumer surplus is composed of two parts. First those buyers who were already buying of the good at the higher price are better off because they now pay less. The increase in consumer surplus of existing buyers is the reduction the on in the amount they pay it equals the area of the rectangle. Second some now buyers enter the market because they are now willing to buy the good at the lower price. As a result the quantity demanded in the market increase from. The consumer surplus these newcomers receive is the area of the triangle.

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