Consumer and producer surplus
The term
surplus is used in
economics for several
related quantities.
The
consumer surplus is the amount that consumers benefit by being
able to purchase a product for a price that is less than they would be
willing to pay.
The
producer surplus is the amount that producers benefit by selling
at a market price that is higher than they would be willing to sell for.
On a standard supply and demand diagram these are the areas in the
triangles below:
The consumer surplus shows up above the price and below the demand
curve, since the consumer is paying less for the item than the maximum
that they would pay.
The producer surplus shows up below the price and above the supply curve, since
that is the minimum that a producer can produce that quantity with.
Combined, they make the total surplus.
A basic technique of bargaining for both parties is to pretend that one's surplus is less than it really is: the seller may argue that the price he or she asks hardly leaves him or her any profit, while the customer may play down how eager he or she is to have the article.
see also: microeconomics, price discrimination, price skimming negotiation