You will come across consumer and producer surplus in a variety of contexts as your study of economics progresses. A key skill you will need in order to identify and understand these concepts is the ability to read diagrams — and to identify, interpret and understand areas on a diagram.
Let’s start by defining consumer surplus using Figure 1, which shows a market with demand curve (D) and supply curve (S). This competitive market is in equilibrium, with price P* and quantity traded Q*.
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