Editing Economic surplus (section)

=== Distribution of benefits when price falls ===

When supply of a good expands, the price falls (assuming the demand curve is downward sloping) and consumer surplus increases.  This benefits two groups of people: consumers who were already willing to buy at the initial price benefit from a price reduction, and they may buy more and receive even more consumer surplus; and additional consumers who were unwilling to buy at the initial price will buy at the new price and also receive some consumer surplus.

Consider an example of linear supply and demand curves.  For an initial supply curve ''S''<sub>0</sub>, consumer surplus is the triangle above the line formed by price ''P''<sub>0</sub> to the demand line (bounded on the left by the price axis and on the top by the demand line).  If supply expands from ''S''<sub>0</sub> to ''S''<sub>1</sub>, the consumers' surplus expands to the triangle above P<sub>1</sub> and below the demand line (still bounded by the price axis).  The change in consumer's surplus is difference in area between the two triangles, and that is the consumer welfare associated with expansion of supply.

Some people were willing to pay the higher price ''P''<sub>0</sub>.  When the price is reduced, their benefit is the area in the rectangle formed on the top by ''P''<sub>0</sub>, on the bottom by ''P''<sub>1</sub>, on the left by the price axis and on the right by line extending vertically upwards from ''Q''<sub>0</sub>.

The second set of beneficiaries are consumers who buy more, and new consumers, those who will pay the new lower price (''P''<sub>1</sub>) but not the higher price (''P''<sub>0</sub>).  Their additional consumption makes up the difference between ''Q''<sub>1</sub> and ''Q''<sub>0</sub>.  Their consumer surplus is the triangle bounded on the left by the line extending vertically upwards from ''Q''<sub>0</sub>, on the right and top by the demand line, and on the bottom by the line extending horizontally to the right from ''P''<sub>1</sub>.