David R. Henderson  

My Big Fat Consumer Surplus

Deficit Commission Co-Chairs' ... Random Thoughts on the Bowles-...

My original idea for this post was to share my intense happiness at getting my computer fixed quickly. Then I realized that what's really going on is that I got huge consumer surplus. I'll tell you my story and then ask you to share yours.

This morning, in the middle of my most productive time, I suddenly couldn't send gmails. I could receive fine; I just couldn't send. I had to get some materials to my students and I didn't have their e-mails all in one place other than in my gmail account. So I had to send a problem set to an admin assistant at school and ask her to send things on to the students. I was anticipating the enormous hassle from using my school account.

So I went to the Apple Genius Bar looking for a quick fix. The guy got on his iPhone and told me that the next time slot wouldn't be for 14--"Oh, no," I said to myself, "not 14 days"--minutes. I was delighted. I went to the nearly Starbuck's, got my favorite--a tall mocha--and was back in 10 minutes. Ten minutes later, I was called to the front and the guy fixed it in about 5 minutes. I tried to send an e-mail to my wife and it worked. I left ecstatic. What would I have paid to have it fixed today instead of tomorrow? At least $100. What would I have paid to have it fixed today instead of two weeks from now? At least $500. Now that's consumer surplus!

I find that occasionally computing consumer surplus is a great way to appreciate economic freedom. It also is one more reason, besides the ones dealt with here, not to take GDP as a sufficient measure of economic well-being. GDP leaves out every penny of consumer surplus.

So what's your favorite story about your big fat consumer surplus?

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CATEGORIES: Cost-benefit Analysis

COMMENTS (24 to date)
Matt writes:

I paid $15,000 for my car and I spent about $60 on a cheap bidet I rigged to my toilet. To me, they are worth about the same.

Hyena writes:

I'm surprised you'd pay so much for an immediate fix. You could have purchased an iPad for the same amount.

In fact, I heartily recommend doing so if you haven't already. It makes you richer than Croesus.

Jacob Oost writes:

Recently a friend and I were finally going to the local big science museum after saying we would go for like two years. On the front steps no less, a lady with five other people in tow said she had a coupon from work for five free admissions and would my and my friend want to get in for free? Had we not parked at the meter we did, or gone on Sunday instead of Saturday, any other number of things, we wouldn't have been walking into the building the same time a friendly stranger with a free ticket was also walking in. We paid eight bucks extra though, to attend a do-it-yourself cow eyeball dissection session in the evening. When we went to that, they had ran out of eyes from the last session, BUT they had one left and would refund all of our money AND let us crowd around and watch the girl do a dissection and let us handle the pieces and make incisions and so forth.

I spent an entire day at an expensive downtown museum and spent nothing else than the opportunity cost of six hours on a Saturday and some driving time. I spent the dough on sushi and sesame chicken instead.

Evan writes:

I'm a reasonably big fan of the sword-and-sorcery series "The Slayers," and have bought a box set of the first 3 seasons. I knew there were a number of movies and OVAs (direct to video miniseries) based on the series, but the DVDs were out of print. If I was to buy all the out-of-print DVDs on Amazon.com new I'd have to pay approximately $92 (including shipping). I figured I'd end up doing that eventually since I love the series, but was putting off buying them since they were so expensive.

Last month my fiancee and I went to Youmacon, which we do every year for our anniversary, and I found a box set of all the movies and OVAs in the dealer's room for $45. And it's not a bootleg, I checked. So I saved $47. And I didn't suffer any opportunity cost since I always go to that convention anyway.

Douglass Holmes writes:

How about a worker bonus? Back when I had a job, I would go through the want-ads looking for work similar to what I did and try to see how much money I would be able to make if I left my employer.

Usually, it was considerably less than what I was making.

Michael writes:

Every time I resist buying something that I have a brief spasm of interest in buying (e.g., new iPod, $60 bottle of whiskey, new car), I have a reflective period where I realize I would really not have been better off making the purchase. I'm perfectly content with my 6-year-old iPod, my 10-year-old car, and cheap wine. My surplus is the hundreds of thousands I've saved over the years in resisting the urge to spend money (which is most of the time). I accumulated $30K this summer alone by not buying a new car. That may not quite be true consumer surplus, since I avoided a transaction altogether, but in a broad sense I still preserved my utility without paying higher or any prices.

Eric Hosemann writes:

I like what Michael's getting at: because things today like iPods and cars are so durable and full of value, our real consumer-surplus could be greater than we imagine.

The division of labor recently allowed me to enjoy a considerable consumer surplus: a service technician replaced a broken check valve on our well for under $300. Our well is our lifeline--where we live, we don't have city water or sewer. Just wells and septic tanks. I could have done it myself, yet a specialist did it in half the time it would have taken me to do it at half the price I would have paid.

I've been thinking about consumer surplus, sort of along the lines of Russ Robert's arguments that free trade and specialization allow us to enjoy the important things in life--friends and family and loved ones--more. Consumer surplus helps us do that. If I had to pay what I was willing to pay for well repair, I would have had to crank out that much more overtime to afford it, hence less time with my family!

Evan writes:

I came home from work yesterday and as soon as I walked through the door, the power to my house shut off. Turns out, my house blew a fuse which almost caused a fire the basement. Thankfully my Mom had it under control. It was too late to late to go out and get a new fuse, so we went the night without power.

Today I came home from work and my Mom had gone out to get a new fuse. The power worked again and everything was right with my world. Then she started complaining about how the new fuse cost $25 at Ace Hardware. I was like "I'd pay $1000 if it means I can listen to music and take a shower".

That is consumer surplus.

Bob Murphy writes:

I would pay someone who had the legal right to hit me, up to $1,000 not to smack my face constantly throughout the day.

And yet I refrain, for free.

paul writes:

I think the Khanacademy is the post child for consumer surplus. I think Sal deserves sainthood.


Luke writes:

Skype. My father is in Afghanistan for a year and I would be willing to pay at least $100/month to be able to speak with him face to face, yet it's entirely free. Really remarkable.

Brian Clendinen writes:

I was about to buy a ITouch,(which is about $180). Then I was talking with a co-worker and he had a first generation Iphone laying around. So I paid $90 dollars for a phone (going ebay price) in almost new condition. I got a device that from my standpoint had the functionality I wanted. Plus I was able to get ride of my cheap $30 dollar phone and not have an additional item in my pocket. There was no way I was going to spend $600 on a new Iphone. Now that I have had it for a while, I would say I would of paid over $300 for it.

In addition, we paid nothing to quickly look up the going market rate on the item. I most likely would of paid $170 or $180 if my co-worker had not set the conditions to use the Ebay price as a selling guideline before hand. He thought that is what the phone should be going for. I love ideas which make markets more efficient.

Thomas DeMeo writes:

How do you adjust your concept of consumer surplus against the reality that you can only really afford to pay for a small number of potential disasters or windfall opportunities, while the total number of these is almost limitless? Your gmail account was critical, but if enough other personal disasters were occurring at the same time, you'd run out of cash.

Hyena writes:

Mr. DeMeo,

There's a reason that, in the past, people tended to die a lot.

Erin Diaz writes:

Every time I pay under $2 for a taqueria taco I feel like I'm stealing. I would easily pay $3.00 to $3.50 for it.

The restaurant chain Chipotle seems to recognize this because they do charge $3.00 to $3.50 for a very similar looking, but not similar tasting, product.

Philo writes:

Yesterday I would have paid many thousands of dollars not to have a heart attack in the next 24 hours. But I paid nothing, and yet I didn't have the heart attack; my "consumer's surplus" was many thousands of dollars!

Repeat this thought experiment for all the other disasters (besides a heart attack) that might have befallen me; my consumer's surplus over the last 24 hours has been *uncountable great*!

Mary Ellen writes:

I moved to Boston from suburban NJ. My car was costing a fortune to park and didn't handle the snow all that well so I sold it. Now, nearly ten years later, I mostly walk or take the subway (known here as the 'T') or occasionally rent a shared car called a 'Zipcar' (usually a Prius near my apartment that costs $7 per hour including gas & insurance). Including costs of owning a car that's already paid for (parking, gas, insurance, parking tickets) and subtracting the costs of the T and rentals, I have a consumer surplus of at least $42,000. If I add in the health benefits of walking rather than joining a health club or paying for liposuction I could probably argue for a figure north of $75,000. Now that's a surplus!

Pava Renat writes:

The consumer surplus I get every time I deposit my social security check is immense. I mean, I wasn't counting on getting any of that money.

Also, every medical procedure I have ever had, for which I've paid a whole lot less than the marginal utility I've received. A couple of them have even saved my life.

Plus, every time I hug my kids and my grandkid. Wow, the amount of money I've spent on all that private education for them (from Montessori through grad school) sure has paid off in spades -- and that's not counting their enjoyment of and enrichment from the same expenditures.

The biggest negative consumer surplus I get is when I see all the tax deductions from my meagre income. Phooey.

JP98 writes:

Every time I download one of the "Complete Works of [Long Dead Author N]" collections on my Kindle, I get a huge consumer surplus. E.g., all of Dickens for under $5.00. I would gladly have paid that for each novel.

Hyena writes:

One question I have about rating your own consumer surplus is subjective prices.

JP98 states that he'd have gladly paid $5.00 per book for Dickens. On the other hand, I can't actually imagine myself paying for it. Since the works are in the public domain, I haven't been compelled to pay for them since public domain works became readily accessible over the Internet.

How would we measure consumer surplus when that's the case? It seems impossible; because the good is free, our subjective model of its price always says zero. We never expect to pay more and probably wouldn't accept it, knowing that it can be had for free.

JP98 writes:

Hyena -- The books that are "free" on the Internet aren't free to me, because I don't want to read them on a back-lit computer screen and the hassle of moving them onto my Kindle is (to me) greater than $5.

Mike S. writes:

On a cross-country move back in 2001, my wife, 3 year-old daughter, six month-old son, and I were forced off of I-80 in Nebraska due to a blizzard--the highway patrol actually closed the interstate. Faced with the prospect of spending a freezing night in our car on the shoulder of I-80, we managed to get the last available room at a cheap hotel in Grand Island. I forget what we paid; probably around $50. Would have paid $500, happily.

George X writes:

Hyena wrote:

"There's a reason that, in the past, people tended to die a lot."

No, they didn't: they only died once each. And I'm pretty sure the rate hasn't budged in recent years.

Big Ric writes:

Well my story revolves around my wonderful, brand new TOHIBA laptop. Probably the best computer I have ever had. I got it one week before the Fall Semester began. I spent the week with family and hanging with my parents in the living rooms doing the usual stuff (watching T.V., talking, packing, ect.) and of course I spent a fair amount of time acquainting myself with my new computer. SO two days before leaving I go into the living room to pick up my computer off the floor (off the floor I know...bad idea). Only to find out that when I did there was a huge crack down the middle of the screen.

Wanting to get this fixed I called TOSHIBA support. They said it would take them two weeks to fix my computer screen and that it would cost $400. I didn't see that happening; I would do it if I had to though. So waiting I decided to call around town. A local computer shop told me that they could fix the screen for $220 in five days. So I said heck yes. So I got a brand new screen for $180 less. Yay consumer surplus. Oh, and my computer has had no problems since.

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