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Slide 1
supply and demand graph with equilibrium at $600 and 20,000

Imagine that several firms develop a promising but expensive new drug for treating back pain. If this therapy is left to the market, the equilibrium price will be $600 per month and 20,000 people will use the drug, as shown in the graph to the left.

The consumer surplus is the somewhat triangular area indicated in the graph to the left.  It is the area above the equilibrium price value of $600 but below the demand curve.

supply and demand graph with consumer surplus indicated as the area above the price of $600 and below the demand curve