You would have paid $40 for that concert ticket. It cost you $28. That $12 you kept is not a discount and it is not luck — it is consumer surplus, and it is one of the few things in economics you can measure with a ruler and a triangle.
📘 What you need to know
Consumer surplus (CS) = what a buyer was willing to pay − what they actually paid.
Producer surplus (PS) = what a seller actually received − the lowest price they would have accepted.
On a diagram, CS is the area under the demand curve and above the price. PS is the area above the supply curve and below the price.
Both are triangles when the curves are straight lines, so: area = ½ × base × height. The base is a quantity, the height is a price gap.
CS + PS = social surplus (also called community surplus). It is the total gain the market creates.
At equilibrium, social surplus is as large as it can possibly be. That is allocative efficiency, and it happens where MB = MC.
Anything that pushes output away from Qe shrinks social surplus. The bit that disappears is welfare loss.
Consumer surplus: value you got for free
Everyone in a market has a maximum price in their head. Some people would pay a lot for a ticket, some would only go if it were cheap. But everyone pays the same market price. Anyone whose maximum was above that price walks away with a gain, and that gain is consumer surplus.
This is exactly what the demand curve shows. It slopes down because each extra unit is worth a bit less to buyers than the one before, so the height of the demand curve at any quantity tells you what that unit is worth to somebody — the marginal benefit.
Producer surplus: the other side of the same trade
Sellers have a minimum in their head too. A seller who would have accepted $15 but receives $28 keeps $13. Add up that gain across every unit sold and you have producer surplus. The supply curve is the mirror image of the demand curve: its height at any quantity is the lowest price a producer needs to cover the cost of that unit, the marginal cost.
Extend both curves to touch the vertical axis before you shade. If they stop short, your triangles have no top corner and the area is wrong.
Students always ask which triangle is which. Consumers are on top — the buyers’ gain sits above the price they paid. Sellers are underneath, because their gain sits above their costs and below the price they got.
Working out the areas
Because the curves in the syllabus are straight lines, both surpluses are right-angled triangles. That means one formula covers everything.
Area of a surplus triangle
Surplus = ½ × base × height
The base is always the equilibrium quantity, measured along the horizontal axis. The height is a price gap, measured up the vertical axis: from the price to where the demand curve hits the axis for CS, and from the price down to where the supply curve hits the axis for PS.
Always check the units written on the axes. If the horizontal axis says “thousands of units”, your surplus is in thousands of dollars too.
WORKED EXAMPLE
Sara would have paid $40 for a concert ticket but pays $28. The promoter would have sold it for as little as $15. Find the consumer surplus, producer surplus and the total gain from this one trade.
Step 1: consumer surplus40 − 28 = 12Step 2: producer surplus28 − 15 = 13Step 3: add them for the social surplus12 + 13 = 25CS = $12, PS = $13, social surplus = $25Both sides gain from the same trade — that is why the trade happens at all.
WORKED EXAMPLE
In the market above, demand is P = 20 − 0.2Q and supply is P = 0.2Q. Calculate consumer surplus, producer surplus and social surplus. [4]
Step 1: find the equilibrium20 − 0.2Q = 0.2Q → 20 = 0.4Q → Q = 50, P = $10Step 2: consumer surplus (base 50, height 20 − 10)CS = 0.5 × 50 × 10 = 250Step 3: producer surplus (base 50, height 10 − 0)PS = 0.5 × 50 × 10 = 250Step 4: add them250 + 250 = 500CS = $250, PS = $250, social surplus = $500The height comes from where each curve meets the price axis: $20 for demand, $0 for supply.
Why equilibrium is the best the market can do
Here is the neat part. The demand curve is marginal benefit and the supply curve is marginal cost, so the crossing point is where MB = MC. Up to that quantity, every unit is worth more to a buyer than it costs to make, so trading it creates surplus. Past that quantity, the units cost more to make than anyone values them at, so making them destroys surplus.
That is why equilibrium gives the biggest possible social surplus and why economists call it allocative efficiency: resources are being used to make exactly the goods people value most, in exactly the right amounts. Nobody can be made better off without making somebody else worse off.
The red triangle is welfare loss: value that nobody gets, because trades that would have made both sides better off never happened.
WORKED EXAMPLE
Using the same market, output is restricted to 30 units. Calculate the loss of social surplus. [3]
Step 1: find MB and MC at 30 unitsMB = 20 − 0.2(30) = $14 MC = 0.2(30) = $6Step 2: the triangle’s height is the gap between them14 − 6 = $8Step 3: the base is the missing quantity50 − 30 = 20 unitsStep 4: area of the triangle0.5 × 20 × 8 = 80Welfare loss = $80, so social surplus falls from $500 to $420Sketch the triangle before you calculate. It stops you multiplying the wrong two numbers.
🧩 Getting a surplus out of a diagram
Find the equilibrium and mark Pe and Qe with dashed lines.
Draw the price line all the way across to the vertical axis.
Check both curves reach the price axis, or your triangles will not close.
CS = ½ × Qe × (demand intercept − Pe).
PS = ½ × Qe × (Pe − supply intercept).
Write the unit. Surplus is always money, and always in the units printed on the axes.
Where this shows up later. Taxes, subsidies, price ceilings and price floors are all judged by what they do to these two triangles. Getting comfortable with them now makes the government intervention unit far easier.
💡 Exam tip
Shade the two triangles in different ways and add a key. Examiners must be able to see which is which.
Read the axis units before you calculate. “Q in 000s” means a surplus of 250 is really $250,000.
Always give surplus a money unit — $, £ or whatever the question uses. A bare number can lose a mark.
When a curve shifts, both surpluses usually change. Say what happened to each one, then to the total.
Link efficiency to MB = MC in words, not just as a formula. That sentence is worth marks in extended answers.
You can mention consumer and producer surplus in evaluation even when a question does not ask for it — it shows you can judge who gains and who loses.
⚠ Common mix-up
Swapping the triangles. Consumers are above the price line, producers below it. Every time.
Using the wrong height. The height runs from the price to where the curve meets the vertical axis, not to the top of the diagram.
Forgetting the ½. These are triangles, not rectangles.
Thinking consumer surplus is money saved. Nothing is refunded. It is value you received but did not have to pay for.
Ignoring the units on the axes, then giving an answer thousands of times too small.
Confusing allocative efficiency with fairness. Maximum surplus says nothing about who gets it.
Saying producer surplus is profit. It is close, but profit also takes fixed costs off. Keep the two words apart.
Up next: Critique of the Maximising Behaviour of Consumers and Producers — where we ask whether people really are the calm, calculating decision makers this whole model assumes.
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