Consumer surplus is the difference between the total amount of money an individual would be prepared to pay for some quantity of a good, and the amount he actually has to pay.
IF WE were to ask an individual consumer to tell us the maximum amount he would be prepared to pay rather than go without some quantity of a particular good, we should generally find that this exceeds the amount he actually does pay, i.e. price per unit of the good multiplied by the quantity. This is because there is a 'surplus' of satisfaction or utility from the consumption of the good which is not completely swallowed up by the total expenditure on the good.
The money value of this 'surplus' satisfaction is the consumer surplus. A rigorous analysis of the nature of consumer surplus was first put forward by A. MARSHALL. Its existence stems essentially from the tendency for marginal utility to diminish as consumption of a good is increased. The sum of total expenditure on a good, and the consumer surplus derived from it, will give a money measure of the total utility derived from its consumption. The concept o consumer surplus is of some importance in economics, particularly in welfare economics.