What is consumer surplus?

Consumer surplus represents the benefit to consumers from participating in a market. It is defined as the difference between what consumers are willing to pay for a good or service and what they actually pay. When consumers make purchases, they often value the product at a higher price than the market price; this extra value they receive—without having to pay the full price they're willing to offer—constitutes their surplus.

For instance, if a consumer is willing to pay $10 for a cup of coffee but buys it for $6, the consumer surplus is $4. This surplus encapsulates the economic benefit that consumers receive and is an important concept in understanding how markets function and the welfare of consumers in economic transactions.