Consumer surplus is the amount individuals would have been willing to pay, minus the amount they actually paid.
Producer surplus
Producer surplus is the price a producer actually received, minus the price it would have been willing to accept.
An increase in supply
1 of 2
BeforeAt price P1 buyers take Q1. Consumer surplus is area A, above P1 and below the demand curve D.
Supply shifts right, the price falls from P1 to P2, quantity rises from Q1 to Q2, and consumer surplus grows.
Consumer surplus is the area above the market price and below the demand curve. The demand curve traces what buyers were willing to pay, so the gap between it and the price is what they kept.
When the price falls to P2, buyers who were already buying pay less for the same units, and new buyers who value the good between P1 and P2 come in. Both add to the area.
Producer surplus is the area between the market price and the supply curve below it. Social surplus is the two areas added together, and it is larger at the equilibrium quantity than at any other quantity.