What is consumer surplus?

Consumer surplus is defined as the benefit that consumers receive when they are able to purchase a product for less than the maximum price they are willing to pay. It is calculated as the difference between the highest price a consumer is prepared to pay for a good and the actual price they pay. This concept illustrates the value consumers place on a good above its market price, reflecting their satisfaction or utility gained from the transaction.

By purchasing a good below their reservation price, consumers effectively gain additional value, which is represented by the consumer surplus. This measure is significant in economics as it helps to evaluate the welfare implications of market transactions and can indicate how efficiently resources are allocated in an economy.

The other choices do not accurately describe consumer surplus. The price a buyer pays for a good does not consider the value they might have placed on it. The total payment from a buyer reflects the transaction cost, not the surplus or benefit derived from it. The tax paid on a good has no relation to the consumer surplus but rather it represents a cost imposed by the government.