{"id":35941,"date":"2018-07-11T01:00:34","date_gmt":"2018-07-11T05:00:34","guid":{"rendered":"http:\/\/quotulatiousness.ca\/blog\/?p=35941"},"modified":"2018-06-21T08:54:37","modified_gmt":"2018-06-21T12:54:37","slug":"qotd-measuring-consumer-surplus","status":"publish","type":"post","link":"https:\/\/quotulatiousness.ca\/blog\/2018\/07\/11\/qotd-measuring-consumer-surplus\/","title":{"rendered":"QotD: Measuring consumer surplus"},"content":{"rendered":"

Consumer surplus is one of those things which is really, really, difficult to measure. This paper is one of the few that\u2019s able to give us a hard number. But what it is is, really, \u201chow much I would have been willing to pay but didn\u2019t have to?\u201d Say that we\u2019re out and you\u2019re thirsty and I\u2019m not very. You suggest we have a Coke. You\u2019re really interested in this, you\u2019d pay $2 for one, I\u2019m, well, meh, I\u2019d only pay $1 for one. Obviously, the Coke seller (no, not the coke one, that\u2019s different) doesn\u2019t know this so he charges us the same price \u2013 $1 each. I\u2019ve gained no consumer surplus I paid a buck for something I value at a buck, you gain $1 of surplus because you would have paid $2 but only paid that buck.<\/p>\n

In one manner the consumer surplus is a result of mass manufacturing and marketing. We\u2019re pumping out millions of whatever it is, we\u2019ve got to have a \u201cmarket price\u201d and some people will value it, whatever it is, at more than that. That greater valuation is that consumer surplus. Without a producer knowing what your individual demand curve is they cannot charge you the full value you ascribe to it.<\/p>\n

Of course, they try as hard as they can to do so. This is what brands and product differentiation are all about. VW and car brands for example \u2013 there\u2019re SUV models built on roughly the same platform in the Skoda, VW, Audi and Bentley ranges. Oh yes, they\u2019re different cars alright. But perhaps not $300,000 different, which is the price gap between the top and bottom there. Some of this (but please note, only some of this) is because there are people who will pay a fortune to swank around in a Bentley and there are many more who will not, thinking a Skoda is just fine (I do a little work for the company and the new Skoda SUV is indeed very fine but then I would say that, wouldn\u2019t I?). That\u2019s product differentiation.<\/p>\n

Another example is what used to happen in old fashioned English pubs \u2013 in the public bar and the saloon. The latter had carpets and comfy chairs, the former very definitely not. Beer was 10% more expensive if you wanted the comfy chair experience \u2013 very simple and remarkably successful product differentiation. Being able to charge different prices to different groups for much the same thing. Or as it often used to work out, different prices to the same person on different occasions. Dates were in the saloon bar\u2026.<\/p>\n

Tim Worstall, “Freakonomics’ Steven Levitt On How Inefficient Uber Really Is”, Forbes<\/em><\/a>, 2016-09-20.<\/p><\/blockquote>\n","protected":false},"excerpt":{"rendered":"

Consumer surplus is one of those things which is really, really, difficult to measure. This paper is one of the few that\u2019s able to give us a hard number. But what it is is, really, \u201chow much I would have been willing to pay but didn\u2019t have to?\u201d Say that we\u2019re out and you\u2019re thirsty […]<\/p>\n","protected":false},"author":1,"featured_media":35193,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[25,41],"tags":[104,111,1026,290],"class_list":["post-35941","post","type-post","status-publish","format-standard","hentry","category-economics","category-quotations","tag-booze","tag-cars","tag-microeconomics","tag-statistics"],"jetpack_featured_media_url":"https:\/\/quotulatiousness.ca\/blog\/wp-content\/uploads\/2016\/06\/favicon.png","jetpack_shortlink":"https:\/\/wp.me\/p2hpV6-9lH","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/posts\/35941","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/comments?post=35941"}],"version-history":[{"count":2,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/posts\/35941\/revisions"}],"predecessor-version":[{"id":35943,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/posts\/35941\/revisions\/35943"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/media\/35193"}],"wp:attachment":[{"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/media?parent=35941"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/categories?post=35941"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/tags?post=35941"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}