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Economic Surplus is the overall benefit an economy receives with the selling and purchase of a good or service for a price. As we know the economy is comprised of consumers or buyers and producers or sellers. Economic surplus is divided into two parts: buyer surplus and seller surplus.
The buyer surplus or consumer surplus is the amount that a buyer receives from buying a good or service for a price that is less than the price that he or she is willing to pay. In other words consumer surplus is the measure of the welfare that people gain from the consumption of goods and services which are bought for a lesser price than usual. It is the difference between the total amount the consumers are willing to pay and the amount that is actually paid. When the price for a good or a service is perfectly elastic, the surplus will be zero because, the price paid for the product matches the price, the consumers are ready to pay. And when the price is perfectly inelastic, then the consumer surplus is infinite. Demand is totally invariant to a price change, meaning that whatever the price, the quantity demanded remains the same.
The seller surplus or producer surplus is the amount that the producer receives from selling a good or a service for an amount that is higher than the price that they are willing to sell. It is the difference between what the producers are willing to sell a good or a service and the price that they actually receive. The more elastic the supply curve, the smaller the amount of producers surplus. If the supply curve is perfectly elastic, then producer surplus is zero since the price at which they are willing to supply is the market price.
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