Consumer Surplus:

Consumer surplus refers to the disparity between the price a consumer is prepared and able to pay for a product or service and the actual price they pay. It is calculated based on the consumer's estimation of the private benefit they will derive from consuming the good or service.

Consumer surplus is consistently represented as the area above the market price and below the demand curve. It stems from the fundamental principle of the law of diminishing marginal utility, where consumer satisfaction decreases as additional units of a good are consumed. Consequently, consumers become willing to pay a lower price for each additional unit.

It's noteworthy that inelastic demand curves result in a larger consumer surplus. In such cases, consumers are willing to pay significantly higher prices for the good due to its perceived importance or lack of close substitutes.

Producer Surplus:

Producer surplus is defined as the disparity between the price the producer is willing to charge for a good or service and the price they actually charge in the market. Essentially, it represents the private benefit reaped by the producer, encompassing the profit that not only covers their costs but also contributes to their overall earnings.

It is always represented by the area below the market price and above the supply curve.