Hail Consumer Surplus

Today I came across yet another article criticizing a company for being “exploitative”, whose criticism amounted to not liking the fact that its pricing was calibrated to the market. In times like this, I just want to make sure we’re all on the same page about the concept of consumer surplus.

Consumer surplus is an Econ 101 concept which I think is really important to appreciate. Whenever you spend money on something, do you ever stop to consider the maximum amount that you would spend on that thing if you had to? The gap between what you pay and the max you would pay is your consumer surplus.

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For example, if I had to pay $100 for every meal or else I wouldn’t get enough calories, then that’s what I’d pay. But in practice, I pay a small fraction of that. So every time I eat a meal, I enjoy a consumer surplus of over $50.

This may sound like a weird or extreme example, but it’s not. Humans used to spend almost their whole day’s labor to be able to feed themselves. The ability to purchase food for less than $100 per meal really is a huge consumer surplus that billions of people alive today get to enjoy, thanks to the last few thousand years of technological and economic progress.

Once you’re tuned to notice consumer surplus, you start really appreciating all the nice things capitalism gives us. It’s okay to criticize companies, as long as you keep it in perspective that companies are the engines of consumer surplus.