I am happy today. I was out shopping for golf shoes and was mentally prepared to spend $75 but instead found a great pair for $60. I immediately purchased the shoes! The difference between the max price I was willing to pay, $70 and the market price, $60 is my consumer surplus. If I go in next week and the price is reduced even further to $50 my consumer surplus would be $25. If market price falls, consumer surplus must increase.
Here’s an example of producer surplus and consumer surplus from the movie Pretty Woman. In the clip Edward and Vivian (aka Julia Roberts) negotiate on $3000. She would have stayed for $2000 so the producer surplus would be $1000 and he would have paid $4000 so the consumer surplus would be $1000. Check out the minutes from 4:40-6:30.
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