In classic microeconomics, both parties benefit from transactions:
- Buyers receive a "consumer surplus" measured by the maximum amount they would've been willing to pay versus the actual price.
- Sellers receive a "producer surplus" measured by the minimum amount at which they would've been willing to sell versus the actual price.
Let's assume I make a purchase that I will selfishly enjoy but which won't help anyone else, like a PS5.
On one hand: when I make a purchase that I'm happy with, I capture consumer surplus and provide the other party with producer surplus. I also put money in someone else's hands which they can use to make further beneficial trades. If I skipped the trade and set my money on fire instead, both of us would be worse off.
On the other hand: when I make a purchase, I'm consuming labor and resources that could've been used for other things. I and my trade partner may be better off, but there's a negative externality of using up some of civilization's finite productive capacity. I'm not sure how best to think of this, but I assume this negative externality shows up as higher labor and resource costs.
On average the first consideration clearly wins out -- otherwise, the world would be better off halting all trade. But what about on the margins? Has there been any work on quantifying the size of consumer + producer surplus versus negative externalities of production? Do we know anything about how this changes as average spending changes?
Correct, and intentionally so. This is why I compare to setting the money on fire instead. Maybe I have the wrong framing, but it seems valuable to me to look at the marginal value of a single spending act in isolation. I might do many things with the money (like invest, spend, or donate it in various ways), and it would be interesting to know each of their values independently so I could compare them on eve... (read more)