Consumer surplus is the difference between what you do pay for a good or service (i.e. the price) and the maximum that you would have been willing to pay. It makes sense to say that we’d only ever buy something if it’s worth more to us than the price we pay, but this has a nice outcome that is worth dwelling on.
Every purchase that we make delivers consumer surplus. When I paid £380,000 for my house it seemed like an awful lot of money, and I was pretty certain that the person who sold it would have accepted quite a bit less. But I also knew that I would have happily paid over £400,000. The difference of (at least) £20,000 constitutes my consumer surplus.
When you think about it, so much of our utility comes from consumer surplus. People often criticize companies that charge prices that are higher than the cost of production (i.e. for making “excessive” profits), but the other side of the coin is that consumers are always paying a price less than they value the good (“excessive” utility?).
A really good example of the concept of consumer surplus is the internet.
A nice assignment question is to think of something that has delivered consumer surplus to you, similar to the examples above. Feel free to collaborate on this slide deck:
A good friend of mine has a Substack called “Consumer Surplus“, and one of his most popular articles is “Things I recommend you buy and use.” This is a wonderful (and very useful!) example of how the extended market order delivers meaningful surplus value for ordinary consumers. Here are some specific examples of everyday purchases that I consider to be bargains, so if you have some spare time feel free to take a look below!
Most of the contents of the kitchen is consumer surplus — the kettle, toaster, pretty much anything I eat is ridiculously cheap.
If you have kids, you’ll almost certainly have parts of the Kalas range of plastic cups, bowls and plates. If you don’t have kids you probably don’t need it. But I can’t think of a better example of products that I’ve gained so much use out of. 21p per item, dishwasher and microwave proof, and perfect sizes. Now our kids are a bit older we use the bowls and plates for feeding the cats. I know plastic is supposed to be evil, but it’s remarkable how we can engineer such practical and pleasant products so cheaply.
Getting the remnants of mayonnaise out of a squeezable bottle is impossible, and given that you are paying a premium this seems wasteful. But clearing out a glass jar with a knife transfers greasy foodstuffs from the rim to the handle, and knives are too narrow to spread mayo efficiently. My solution is to use a long handled spoon (i.e. ones made for a latte). You can make contact with the base of the jar without being in contact with the sides, and you can spread the mayo itself using the back of the spoon. Scoop, dollop, spread. No knife to wash up (just lick the spoon and ̶p̶u̶t̶ ̶i̶t̶ ̶b̶a̶c̶k̶ ̶i̶n̶ ̶t̶h̶e̶ ̶d̶r̶a̶w̶e̶r̶ drop it in the sink). You can get a pack of 4 for under £4.
Home & garden
We’ve got 2 wood burners and a decent BBQ. Enjoying a fire is one of the most pleasant feelings in life. And yet getting a decent fire going, quickly, can be a pain, even with practice. A large box of flamers is incredibly useful. A few of these beneath some kindling and small logs will quickly and effortlessly set up a strong burn.
My favourite pens are made by uni-ball and although they are pricier than a standard Bic, they are ultra reliable and last a long time. The consistency of the flow and the transparent ink chamber are critical features. You can buy a pack of three for under £5.
I spent around £30 on a wooden cookbook stand around 15 years ago and have used it every day since. I saw my grad school colleague Brian Hollar recommend using a Wooden Reading Rest for this purpose, and it works a treat. If i’m typing up notes I want to be able to read a passage within a book without having to hold it open. I now use it mostly for organising paperwork — things that I want to keep close to hand, or things I want to be visible (such as upcoming travel documents, my Personal Finance MOT Dashboard, or Research Pipeline).
I have a Casio MS8S calculator at my desk at home, and one at my desk at work. Although I love technology I enjoy interacting with tactile objects, and hate using the calculator on my phone or computer. When I’m doing my budgeting, expenses, or other financial planning I find it much easier to use a physical device with large buttons. This is especially useful when grading exam papers.
I have lots of books on shelves and like them to look neat. A good way to achieve this is with heavy duty but unobtrusive bookends. The 5 Star Office Metal Bookends do the job magnificently. They come in different sizes, stack, and are under £10 a pair.
I spend much of my working life lecturing, and only ever use a Kensington clicker. At just over £20 it’s not the cheapest on the market. But it’s totally reliable and is a pleasure to hold. Other products have more buttons but I find them superfluous and interfere with being able to easily move between slides. This has all you need — a laser pointer, forwards, backwards and (critically) a button to create a black screen. Every other clicker I’ve used I’ve either accidently pressed the wrong button, or been unable to blank the screen when I’ve needed to. This one has everything you do need, and nothing that you don’t.
Have you ever been in the following situation:
If so, I have the solution. Bring those materials in a stamped, self-addressed envelope and then once you’re finished just drop it in a post box. A 2nd class stamp for a “large letter” is 83p. A4 envelopes are free (from work). Being out on the lash with nothing to lose: priceless.
Travel & technology
For several years I thought I was allergic to fish and chips, because every time I ate them I’d be up during the night vomiting. The same thing happened if I ate anything particularly rich, and given that I spend a lot of time in South Eastern Europe I became used to midnight sickness. Finally, I saw my GP about it and learnt that it was nothing more than indigestion. And for 10p a tablet I can now eat merrily and sleep soundly.
A lovely example of consumer surplus is that when I bought my iPad I automatically added an Apple Smart Cover for £45. Just prior to entering my card details, I thought I should probably spend a few minutes seeing if there were any cheaper options. Sure enough, MoKo have a near identical product for £8.99. Bargain!
A UK Mu plug is £19, so a little steep for a USB charger, but its thinness makes up for this. I’ve had mine for several years and still love the feel of the design.
This European USB charger is not as slim as an Apple one, and it’s not as powerful as its rivals, but it occupies the perfect middle ground for me, and represents good value at £6.40. Rather than bringing a plug adapter on European adventures, a European USB charger takes up much less room. (I used to rely on the USB socket of the hotel TV, but they can be hard to access and lack an obvious place to put your phone whilst it’s being charged).
I recently upgraded my portable battery and bought an Anker PowerCore Slim. I’m astounded by how much of a charge it can carry, and even though I drain my iPhone battery within a day, most of my trips are ~4 days. So I’m inclined to leave all USB chargers and plug adapters at home and only use this.
I’m not sure whether such an expensive purchase can count as a source of consumer surplus. But I remember the joy of receiving my Rimowa Topas just prior to a trip to Boston in March 2008, and I still gain pleasure from using it over a decade later. It is light and yet robust. Small enough to take as carry on, but sufficient capacity for every trip I make. Occasionally my travel companions remark on the fact that it’s dented — but that’s it’s personality! Rimowa has picked up bruises from all over the world. It’s been battered and bashed around from Bucharest to Guatemala. It’s part of my identity, and I adore it.
The current version, now called “Original” and with fully rotating wheels, RRPs at £820. I found mine online for around £400, and you can look for second hand versions. Airlines like Lufthansa have their own range, so shop savvy.
Another expensive item, but its inclusion on this list demonstrates the joy of use. I appreciate that other noise cancelling headphones exist, but I am confident that Bose remain the market leader for this technology. And although any over ear headphones are good for allowing you to focus on the audio, high quality noise cancelling technology elevates this to something else entirely. Being able to immerse yourself in a movie or podcast on transatlantic flight transforms those hours from being an uncomfortable chore into an intensive experience.
I’ve had my Bose QC15 for several years and they have some wear and tear on the leather. So I have been on the verge of spending £300 on the latest model, the QC35. Then I realised that you can buy replacement Ear Pads for just £8.99. That’s £291 of consumer surplus!
I’ve recently found myself leaving my earbuds in even when not listening to music. It takes the edge off background noise when travelling, and aids concentration when reading. I had been led to believe that you shouldn’t put anything in your ears that are smaller than an elbow, but after an audio check at SpecSavers I now believe that it’s fine. I’m considering paying several hundred pounds for custom made ear plugs, but am reasonably happy with these auritech ones. For £20 they’re much cheaper, and come in a delightful canister.
I’ve had a Philips Soundshooter bluetooth speaker for several years and it still works a charm. Easy to pair, fits in the corners of your suitcase, and delivers impressive sound. That’s worth around twice as much as the £30 retail price. The latest model is here, and has an added benefit of not looking like a hand grenade (which doesn’t work well when travelling through airports with it). My version, pictured below, is still going strong.
I’m quite serious when I unashamedly say that Microsoft Office is one of the greatest achievements of civilisation. Whether writing reports, analysing data, or presenting findings, the suite of office products turbocharged our ability to manage large organisations. When I started to think about what software to include in this article, I wanted to opt for non obvious examples. I use Camtasia for recording lectures and editing videos, but it’s bulky and expensive. I also use a range of classroom technologies that could well belong on this list. I am generally skeptical of claims about technological lock in — network effects are real but entry barriers tend to be low and entry effects can work in reverse. So if lots of people coordinate around a particular technology, and continue to use it, our first assumption should be that it’s good. And listing all the frustrations one has when using Word, Excel or PowerPoint, merely underlines this point. If we still use it, despite some flaws, consider why. Over the years I’ve jumped on the Open Source bandwagon, I’ve tried “simple” software that strips away unnecessary functionality, and I’ve tried collaborative alternatives. As an economist, it’s been a source of professional shame that I can do all that I need with Excel. I survived grad school without developing a capability for Matlab, Stata, R, or even Latex. But I think that places too high a burden on accessible programmes with an intuitive interface. I’m not proud of being a casual empiricist, but I’m out.
I’m tempted to have a section on subscription services that I use, such as 1Password, NordVPN, Netflix, Spotify, and Overcast. I definitely get value from them, and recommend that you use them. But the marketplace for consolidated password managers, secure internet surfing, podcasts, and music streaming, are reasonably mature. I’m sure other providers are just as good, and user interfaces can be idiosyncratic. As long as you use one, it probably doesn’t really matter which. I’m confident that there aren’t better products on the market for me, but when added up over the course of the year they can be quite costly. I guess collectively, these products give me consumer surplus. But I wouldn’t rave about any of them on their own.
Health & fitness
Before I go for a run or play football I have a few sniffs of a Vicks Inhaler. It clears out my airways and has a noticeable impact on my ability to intake oxygen. A few quid each and well worth carrying a few around.
I don’t understand why socks don’t come in a larger range of sizes — I’m size 11 and the standard sizes of “large” (8–11) are usually too small, and “extra large” (11–14) too big. But I’m glad that even cheap running socks are now foot specific. More Miles is a decent brand and I think ankle coverage is an important feature. I don’t run enough to warrant a 5 pack, so I like this pair for £3.95.
Over the last year I’ve really enjoyed clocking a few local parkruns. These are regular (every Saturday at 9am), timed 5km runs. The atmosphere is friendly and encouraging and the fact you receive a time generates an incentive to monitor and better yourself. (You can check my progress here). The events are totally free, so can’t technically be claimed as a source of consumer surplus. But one way to financially support the concept is to buy merchandise. And for £14 a wristband is great value. It means that you don’t need to bring a print out of your barcode (which is scanned at the end of the race to register your time), and since the band contains your “In Case of Emergency” details and medical information I’ve also started using it when riding my bike, or any other activities that present a non trivial risk that I will become unconscious and unidentifiable.
I occasionally referee youth football matches, and even as a coach or parent I sometimes want to keep track of the score. But I find it annoyingly difficult to mentally retain information whilst concentrating on observation. If I need to count something I can, and if I need to make immediate judgments I can. And yet doing these at the same time stresses me out. It’s a little like trying to remember directions whilst driving a car. A Sat Nav doesn’t do anything you can’t do yourself, but it reduces the mental burden, and that feels nice. Outsourcing information is handy when you need to concentrate.
So I use this Referee’s Scorer. It’s a little larger than it needs to be, but fits in a pocket or the palm of your hand. You can easily adjust the scores but there’s no risk of doing so accidentally. It’s much easier to use than a pen and paper. Under a tenner, so much cheaper than a fancy digital contraption. It’s a lovely analogue computer.
It’s amazing how few people know the right order of dental hygiene. It’s common to use mouthwash after brushing, but then you rinse off the toothpaste. A key function of a toothbrush is a device to coat your teeth with beneficial active ingredients. Don’t rinse with water, let alone mouthwash. The correct order, unambiguously, is:
You can get 90 plackers for under £8. I “discovered” these when living in America, and if there’s one thing Brits need to be open to it’s learning about oral hygiene from our cousins.
This article was first published as: https://anthonyjevans.medium.com/sources-of-consumer-surplus-c4facf8a6532
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