We can look at individual demand curves for a specific good from two different perspectives:

1.  Most of the time we see demand curves as answers to the question, “How much will be bought at each possible price?” The quantity demanded depends on the price.

2.  Alternatively, we might view demand curves as graphing answers to the question, “If people have certain amounts of good X, what is the most they would be willing to pay for an extra unit of X?”

 

This second perspective views price as depending on quantity. Both approaches yield the same demand curves.

 

 

The view that a good’s marginal value depends on the amount available is a key to specifying in monetary terms the satisfaction gained from being able to buy at a single market price. Using our original lemonade example (see Figure 3), you paid $2.95 total for the first four glasses, but only $0.50 for the fourth (last) glass. But if lemonade sold for a flat price of $0.50 per glass, you would spend $2 to drink four lemonades, thereby gaining $0.95 worth of utility. This gain represents consumer surplus.

Consumer surplus is the difference between the amounts people would willingly pay for various amounts of specific goods and the amounts they do pay at market prices.

This is roughly the area below the demand curve but above the price line, assuming that income effects are trivial.

 

Even though consumer surplus cannot be measured quantitatively, this concept permits qualitative assessments of such things as the efficiency of some of the government policies addressed .