hey everyone in this video I'm going to discuss understanding consumer surplus so consumer surplus is a measure of how well consumers are doing and economists often use it to compare Market scenarios or to evaluate the effect of a market intervention on our consumers and what we do is we take the difference between a consumer's willingness to pay that's wtp which is the maximum price that a consumer will pay for a unit of a good and the price that the consumer actually pays for that good for each unit that is sold and consumed so as an example if I were a consumer buying an Apple for instance and I would pay up to two dollars for a single Apple so that's my willingness to pay but I was able to buy an Apple for one dollar that would be really good for me because I would have been willing to pay much more than a dollar but I didn't have to and we can actually interpret this in another way if we understand the willingness to pay as being the monetary value of the benefit that I get from consumption that is a marginal benefit of consumption well then in this example I got two dollars worth of benefit from consuming the Apple but I only had to pay one dollar so economists say that I get an additional Surplus that is consumer surplus or CS of well two that's my willingness to pay minus one that's the price so equal to one if we consume more than one unit we add up over all of the units consumed so if we look here at the table on the bottom left hand side of the screen let's say I consume three bottles of water which I buy for three dollars each in the table you can see that my willingness to pay for the first bottle is six five for the second bottle and four for the third bottle I can find the consumer surplus by finding my willingness to pay minus the price for each unit and then adding those differences up for the first unit it's six minus three so three for the second unit it's five minus three so two and for the third unit it's four minus three so one now the total consumer surplus from my consumption of the three bottles is just the sum of these differences so three plus two plus one so equal to six so we might also have examples like this one here on the bottom right hand side of the screen where we have a demand curve in this example the price is 20 and the quantity demanded at that price is 10. now here it's pretty straightforward to use our demand curve to calculate our consumer surplus because our demand curve is actually interpreted as telling us the highest willingness to pay for each quantity that we're consuming so if we take one unit save the consumption of our fifth unit here well the height of our demand curve let's say is 25 we can interpret that as the willingness to pay for that fifth unit is also 25. now the price is 20 so our willingness to pay minus the price which is what we need in order to calculate our consumer surplus it's just that space here between our Priceline and the demand curve and for that fifth unit it will be 25 minus 20 so equal to 5. now that's just for that fifth unit for examples like this we need to take that space between demand and price for all of the quantities that we consume all up to Q is equal to 10 and that will be our consumer surplus so we essentially just take the area beneath the demand curve above the price over those quantities that we consume and this generalizes if we have examples or questions where we have a demand curve we have a price and we know how much we're consuming at that price we take the area below demand above price over those quantities consumed and that will be our consumer surplus so this area is actually just a triangle so we can take half times base times height so half times ten that's our base times height that will be 10 as well so equal to 50. and that's it that's consumer surplus in a nutshell I hope that it helped you if it did please like And subscribe I hope you guys are keeping safe and well and happy