- Think of a normal demand curve which is downward sloping (due to law of diminishing marginal utility)
- Now take a fixed price for a commodity, which can be represented by a horizontal line (parallel to the x-axis).
- The two lines will intersect at a point. To the left of that point we observe that there are a certain group of people (small in number) who were willing to pay more to buy the same amount of the commodity, but now that the price is lesser (the horizontal line), they enjoy a surplus.
This is known as consumer surplus and is represented by the area of the triangle formed under the demand curve and above the horizontal line.