Comments on: Consumer Surplus, Economic Value and teh Interwebs

By: bdbd

bdbd — Thu, 21 Oct 2010 19:35:50 +0000

so perfect price discrimination increases a sector’s contribution to GDP?

By: Yglesias » The Consumer Surplus Era

Yglesias » The Consumer Surplus Era — Thu, 21 Oct 2010 19:29:32 +0000

[...] seems like a good time to trot out Karl Smith’s handy demonstration of the difference between a given sector’s contribution to GDP and its sector to consumer [...]

By: Johnnie Linn

Johnnie Linn — Tue, 21 Sep 2010 03:24:03 +0000

One-fiftieth of food-production is in-household. The rest generates consumer surplus. If all GDP is food, it is unit elastic because expenditures on food is invariant.

By: Johnnie Linn

Johnnie Linn — Mon, 20 Sep 2010 23:39:18 +0000

Thanks for your reply.

I think that “price” will make sense at least for the short-run aggregate supply curve, which assumes a fixed nominal wage. If labor supply were not leisure-sensitive, all workers would show up at any positive wage and either no workers or all workers would be hired, depending on the “price” of output. But since labor is leisure sensitive, the workaholic workers would show up first in line. If workers have a normal distribution in their preference for leisure, and if hired, must work a full 40-hour workweek, the aggregate supply curve will have a symmetrical ogive, or Z-shape. Incidentally, in that case, the producer surplus will be one-half of GDP, and if the “consumer surplus” under dispute is the other half, total surplus and nominal GDP would be equal.

By: Karl Smith

Karl Smith — Mon, 20 Sep 2010 23:01:18 +0000

Its not clear to me that consumer surplus in AD-AS makes sense because “price” is not in reference to some numeraire good but simply the overall price index.

By: Karl Smith

Karl Smith — Mon, 20 Sep 2010 22:59:59 +0000

No because there is household production of food.

You don’t have to buy food to eat.

By: dWj

dWj — Mon, 20 Sep 2010 22:48:50 +0000

Consumer surplus for “all food” is essentially infinite, in a way that “all food except for beans and some source of vitamin C” may not be. On the other hand, consumer surplus for “beans and some source of vitamin C” isn’t especially high. GDP is additive, but consumer surplus very much is not. I assume that’s what Tyler means about margins.

By: jazzbumpa

jazzbumpa — Mon, 20 Sep 2010 21:00:32 +0000

I’m guessing they’d pay about what they pay for cable TV, not a hefty fraction of income.

Many people are too constrained now to pay a hefty fraction for anything that isn’t a necessity.

Oh, but interweb is a necessity. Hmmmmm.

Cheers!
JzB

By: Johnnie Linn

Johnnie Linn — Mon, 20 Sep 2010 20:58:17 +0000

The revenue rectangles under the curves are the goods’ contributions to nominal GDP. In the aggregate, there will be only one curve, the aggregate demand curve, and if velocity and supply of money are constant, it will have unit elasticity at equilibrium GDP, so with a linear approximation of aggregate demand at that point, nominal consumer surplus will be one-half of nominal GDP.