Consumer Surplus: Getting More Than You Paid For

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A lot of people are willing to pay more than what companies charge.

Naval: Consumer surplus and producer surplus are important concepts. Consumer surplus is the excess value you get from something when you pay less than you were willing to pay.

I get a lot of joy out of my morning Starbucks coffee. Obviously I’ve made some money. So if my coffee cost $20, I would pay it.

But Starbucks doesn’t know that. They can’t price the coffee at $20 just for me, because they’re selling the exact same product to others. So I’m getting a lot of consumer surplus out of the coffee.

Consumer surplus is the extra value you get when you pay less than you were willing

All businesses generate consumer surplus. It’s a good thing to keep in mind when someone’s harping on about how evil companies are. Amazon might be a trillion-dollar company, but I’ll bet they’re generating trillions of dollars in consumer surplus through people’s willingness to pay for convenience. A lot of people are willing to pay more than what Amazon charges.

2 thoughts on “Consumer Surplus: Getting More Than You Paid For

  1. The “magic” of the “market”. In equilibrium, people get the maximum amount of surplus possible.

    In freedom, the allocation of resources is as good as it can be.

    Love it. Cheers Naval 💚

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