Make a reaction paper about consumer surplus and related absurdities, and do you agree or not agree, based on your personal experience/knowledge. By : James H. Nolt
#i neep asap now
Answers
Answer:
A few weeks ago I left off my series criticizing the way economics is taught in order to discuss critical economic events, but this week I pick up the thread last visited in my blog “Private Power and Price Stability.” In that article, I argued that private regulatory powers, more than governments, are the political force that stabilizes prices under capitalism, though those private powers are of course exercised for private rather than public benefit.
Economists do pretend to measure public benefit using a method of calculating “consumer surplus” and its mirror, “producer surplus.” Virtually the entire enterprise of formal public policy analysis, taught at scores of leading universities, spawning a consulting industry in the billions of dollars, is founded on this most dubious tool in the economists’ toolkit. This has become such a bedrock idea in economics that many introductory textbooks now teach it even before they teach about production and the theory of the private enterprise firm (which, by the way, is where classical political economists like John Stuart Mill start).
Consumer surplus is based on the supply and demand equilibrium that I questioned in the previous blog cited above. Supply and demand intersect in an ‘X’ graph, with the X-axis (horizontal dimension) measuring the quantity of whatever good under consideration being supplied or demanded and the Y-axis (vertical dimension) measuring the price of that good. The supply curve rises from left to right, reflecting the idea that producers will be willing to supply more of a good as its price rises. The demand curve falls from left to right, illustrating the Law of Demand, i.e., that consumers will buy more of anything as its price falls. The intersection of the two marks off the equilibrium price and the quantity that will be sold and bought at that price, assuming free markets.
The roughly triangular area above the equilibrium “free market” price and below the demand curve is called the consumer surplus. The producer surplus is under it, between the supply curve and the equilibrium price. These two areas have a very special, indeed enormous, role in public policy analysis. Public cost-benefit analysis, whether of the effect of a tax, environmental regulation