Which of the following best describes consumer surplus?

• A. The total amount paid by consumers.
• B. The difference between price and marginal cost.
• C. The extra benefit to consumers from paying less than they were willing to pay.
• D. The extra revenue received by firms.

Answer: (C)

Consumer surplus is the extra benefit that consumers get because they pay a price lower than the maximum amount they are willing to pay for a good or service. In other words, it’s the difference between what a consumer would be prepared to pay for each unit and what they actually pay. For a single unit, if you’d pay 8 but only pay 5, your surplus is 3. For multiple units, you add up the differences for each unit bought. On a graph, this shows up as the area between the demand curve (how much people are willing to pay) and the price line, for the units that are purchased.

So this description best matches consumer surplus: the extra benefit to consumers from paying less than they were willing to pay. It’s not the total amount spent, nor the difference between price and marginal cost (that’s related to producers), and it’s not extra revenue to firms.