Now, let's see how to put these ideas to work in cost-benefit analysis. The first step will be to restate the relationship between the demand and the consumers' benefits. The consumer will buy just enough of any good so that the marginal benefit of the good is equal to its price. Conversely, the individual's demand curve is also her marginal benefit curve for the good.
The burgers example illustrates this. Let's forget about the pennies and suppose that the consumer bought three burgers at a price of $2, so that the price is exactly equal to the marginal benefit of the third burger.
But notice that the total benefit from three burgers is $17, while the consumer has paid only $6.00 for the three burgers. He has gotten a net benefit of $17-$6.00=$11.00 from the three burgers. This net benefit of $11.00 is called the "consumer's surplus."
How has this happened? The customer got a marginal benefit of $10 for the first burger, but paid only $2, for a net of $8. For the second burger, he got a marginal benefit of $5, but paid only $2, for a net of $3. The consumer's surplus is the sum of the net benefits on the successive units bought: $8+$32=$11.
Price is equal to marginal benefit, which means the marginal benefit of the "last" unit bought. If the price had been higher, he would have bought fewer units. The "last" unit does not mean the last unit in time or space, but the unit the consumer would not have bought if the price were just a little higher. For the "previous" or "inframarginal" units, the person would be willing to pay more if he had to. They must be worth more to him -- but in a competitive market, he gets these "previous" or "inframarginal" units at the same price as the "last" unit. So he gets a net surplus on the "previous" or "inframarginal" units. In the example the surplus is $8 of benefits on the "first" burger and $3 on the "second" burger. This "consumers' surplus" is the benefit the consumer gets from buying in a competitive market.
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