6.3 Consumer Surplus Flashcards
What is a Conspicuous Consumption Good?
Goods consumed because they have “snob appeal”. Trying to flex.
Do Conspicuous Consumption Goods violate our theory of utility maximization?
No, Snobs would still buy more at a lower price as long as other people thought they had paid a high price.
What is Consumer surplus?
Consumer surplus is the difference between the total value that consumers place on all units consumed of a product and the payment that they actually make to
purchase that amount of the product. It is like a “profit” for consumers because they can purchase a product for less than the maximum amount they are prepared to pay.
The Paradox of Value: Why is it that water, which is essential to life, has a low price, while diamonds, which are not essential to
life, have a high price?
Since water has a low price, consumers buy water to the point where the marginal value placed on the last
unit consumed is very low, and the
total value is high.
Since diamonds have a high price, consumers buy diamonds to the point where the marginal value placed on the last unit consumed is very high, and the total value is low.
