Consumer Surplus: Getting More Than You Paid For

People are willing to pay more than what companies charge

Naval:

Consumer surplus and producer surplus are important concepts. Consumer surplus is the excess value you get from something when you pay less than you were willing to pay.

I get a lot of joy out of my morning Starbucks coffee. Obviously I’ve made some money. So if my coffee cost $20, I would pay it.

But Starbucks doesn’t know that. They can’t price the coffee at $20 just for me, because they’re selling the exact same product to others. So I’m getting a lot of consumer surplus out of the coffee.

Consumer surplus is the extra value you get when you pay less than you were willing

All businesses generate consumer surplus. It’s a good thing to keep in mind when someone’s harping on about how evil companies are. Amazon might be a trillion-dollar company, but I’ll bet they’re generating trillions of dollars in consumer surplus through people’s willingness to pay for convenience. A lot of people are willing to pay more than what Amazon charges.