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“If EVERYBODY is irrational, then how can we expect them to make rational decisions all or even most of the time? Libertarianism assumes a rational...”
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“What if economics is to move away from being a self-centred academic discipline interested only in working out the consequences of its own...”
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Dr. William Rees on ‘The Dangerous Disconnect Between Economics and Ecology’
From The Institute for New Economic Thinking:
The world economy...
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But in economics, core and oft-used assumptions necessary to make many theories work, such as “everyone has...
Understanding that one’s personal value for a good may differ from the market price of that good, I have come up with this idea:
- Friend buys me a gallon of milk
- I am very pleased
- However, I would not be equally pleased if that friend instead gave me $4
- Why? Perhaps because Milk is worth more than $4 to me
Although I could easily buy myself a gallon of milk, this gift is worth more than its market value to me. Alternatively:
- I buy friend an iPad
- Friend is delighted
- Friend would have been pleased with receiving $499 instead, but not equally as pleased as now holding an iPad 7
- Why? Because my friend didn’t value the iPad as greatly as the market price.
I understand this seems strange at first, but consider that the demand curve also exists to the right of the equilibrium point. This is indicative that others would purchase an iPad if it was less costly.
However, this is not a budget constraint story. Rather its about decisions. Even a rich woman may not purchase an iPad, despite being able to afford several, because her personal value of the iPad is not $499. By purchasing it for her you are affording her the expense she was unwilling to pay.
The way I see it, consumer surplus helps to explain why gifts can be more satisfying than receiving equivilant cash for both those value the gift more AND less than the market price. However, I understand that there also plenty of other factors that also can go into the value of gift.
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