Chapter 16 Chapter 6 Value and Utility

Chapter 6 Value and Utility Section 1 Price and Utility.Consumer Surplus.opportunity. We may now proceed to consider to what extent the price actually paid for a thing represents the benefit accruing from its possession.This is a broad question about which economics has very little to say, but that little is of considerable importance. We have seen that a man never pays for a thing more, and seldom more, than he would rather pay than not have it: the satisfaction he derives from buying it, therefore, usually more than the satisfaction he forgoes by paying the price for the thing; he thus derives from the purchase a surplus of satisfaction.The price he would rather pay than not get the thing exceeds the price he actually pays, which is the economic measure of this surplus satisfaction.This part may be called consumer surplus.

It is obvious that the consumer surplus from some commodities is much greater than from others.The prices of many comforts and luxuries are much lower than the prices that many people would rather pay than have none of them at all; and these provide a large consumer surplus.Matches, table salt, a penny newspaper or a postage stamp are all good examples. The benefit he derives from buying at a low price what he would rather pay a high price than not have it, may be said to derive from his chance or circumstances, or, to borrow a word that was used a few generations ago, his timing. Interests.Our purpose in this chapter is to apply the concept of consumer surplus to help us approximate some of the benefits a person derives from his circumstances or his opportunities.

The second section is the relationship between consumer surplus and individual needs. To make our concept clear, let us consider the case of tea purchased for domestic consumption.Let us take an individual as an example. If the price of tea is twenty shillings a pound, this price just buys him one pound a year; He bought three pounds, four pounds if the price was six shillings, five pounds if the price was four shillings, six pounds if the price was three shillings, when in fact it was two shillings, he did Gained seven pounds.We must examine the consumer surplus he derives from his ability to buy tea at two shillings a pound.

The fact that the price at twenty shillings just causes him to buy a pound proves that the total enjoyment or satisfaction he gets from that pound is equal to the total enjoyment or satisfaction he would get from spending the twenty shillings on other things. same size.When the price fell to fourteen shillings he could still buy a pound if he wanted to.He would then get for fourteen shillings what was worth at least twenty shillings to him; he would have a surplus satisfaction worth at least six shillings to him, or in other words a consumer surplus of at least six shillings.But the fact that he bought the second pound by his own free choice, thus showing that he thought the second pound of tea was worth at least fourteen shillings to him, represents the added utility of the second pound of tea to him.For twenty-eight shillings he got what was worth to him at least twenty shillings plus fourteen shillings, or thirty-four shillings.In any case his residual satisfaction, which would still be worth at least six shillings to him, would not be diminished by the purchase of a second pound of tea.The total utility of the two pounds of tea is at least thirty-four shillings, and his consumer surplus is at least six shillings.The fact that each additional purchase has an opposite effect on the utility of his previously determined purchases has been taken into account when making the demand schedule and thus cannot be double counted.

When the price has fallen to ten shillings, he can still buy only two pounds if he likes; and get for twenty shillings what is worth at least thirty-four shillings to him, and get a surplus worth at least fourteen shillings. satisfy.But in fact he prefers to buy the third pound: since he does so with indifference, we know that his purchase of the third pound does not diminish his residual satisfaction.He now bought three pounds for thirty shillings; of which the first pound was worth at least twenty shillings to him, the second at least fourteen shillings, and the third at least ten shillings.The whole utility of three pounds is worth at least forty-four shillings, and so on.

At last, when the price fell to two shillings, he bought seven pounds, which would not have been worth to him less than twenty, fourteen, ten, six, four, three, and two shillings, or fifty-nine in all. shilling.This total measures the full utility of the seven pounds to him, and his consumer surplus is (at least) the amount by which this total exceeds the fourteen shillings he actually paid for the seven pounds—that is, forty-five shillings.These forty-five shillings are the satisfaction which he derives from the purchase of tea, and are worth more than the satisfaction which he would obtain by spending the fourteen shillings on a little more of other commodities, which he considers to be at their prevailing prices. does not count; buying more of the other good at the prevailing price would not give him consumer surplus.In other words, from his timing and from acclimatizing his desires in such things as tea, he got forty-five shillings worth of surplus enjoyment.If, without this adaptation, he could not get tea at any price, he would suffer a dissatisfaction at least equal to that which he could get by spending an extra forty-five shillings on other things, And these things were just worth the price he paid for them.

The third section is the relationship between consumer surplus and market.When we consider the average of the majority, individual differences in character can be ignored; if the majority includes equal proportions of rich and poor, price becomes a correct measure of utility . In the same way, if we leave aside for a moment the fact that the same amount of money represents different amounts of pleasure to different people, we can likewise exceed the sum of the selling prices of tea by the price shown in the price list for the total demand for tea. total, to measure the residual satisfaction provided by, say, the sale of tea in the London market.

This analysis, with its new name and elaborate method, seems laborious and unreal at first glance.But upon careful study, we can see that it does not introduce new difficulties or make new assumptions; it merely illustrates the underlying difficulties and assumptions in the everyday language of the market.For, in this case, as in others, the apparent simplicity of everyday language conceals real complexity, and it is the duty of scholarship to uncover this underlying complexity, to face it; and to minimize it. complexity: so that at a later stage we can resolutely deal with the difficulties which the vague thoughts and words of everyday life cannot fully comprehend.

It is often said in everyday life that the real value of things to a man is not measured by the price he pays for them: for example, although he spends much more on tea than on salt, , but the salt is of greater real value to him; this will be clearly seen if he has no access to it at all.To say that we cannot believe that the marginal utility of a commodity is indicative of its full utility is but to reduce this statement to a precise technical form. Suppose there are shipwrecked men who are expected to wait a year before being rescued, and there are pounds of tea and pounds of salt to be distributed among them. When only a little salt is available in the tea, the marginal utility of one or two salts is greater than that of tea under the same circumstances.But, in ordinary circumstances, when the price of salt is cheap, each buys so much salt that a pound more adds no satisfaction to him: the whole utility of salt to him is great indeed, But the marginal utility of salt is low.On the other hand, as tea is dear, most people use less of it, and keep it longer in water, and would not save so much if tea could be nearly as cheap as salt.Their desire for tea has not yet reached saturation, and its marginal utility is high. They may be willing to pay the same price for buying one or two more tea and one or two more salt.

The usual expressions of everyday life that we began with suggest the truth of all this, but not in a precise and unambiguous form--the form required by our usual narratives in later work.Using terminology at the outset does not increase knowledge, but it gives familiar knowledge a stable compact form on which to base further research. ① Or, the true value of a thing is not to be studied in relation to individual persons, but in relation to persons in general; this naturally assumes, "First point", that an Englishman is worth a The satisfaction of a shilling may be deemed to be equal to the value of a shilling to another Englishman, and "until a contrary cause arises."

But, as everyone will know, it is only reasonable to suppose that the consumers of tea and the consumers of salt are of the same class of men, and that they include men of all tempers. To say this also involves the consideration that the satisfaction worth a pound is much greater to an ordinary poor man than is the satisfaction worth a pound to an ordinary rich man: , and the correction for comparing one of these with champagne or pineapple is much more important: it changes the whole nature of the estimate.In previous generations, many statesmen, and even some economists, have failed to take care to give adequate consideration to this cause, especially in their tax schemes; Although more often they are only due to lack of thought. On the whole, however, most events studied in economics are events that affect all classes of people in society in about the same proportion, so that the monetary measure of happiness resulting from two events, if equal, Then there is generally no great difference in the happiness of the two events.For this reason, the correct measurement of consumer surplus in a market is of great theoretical interest, and will be of great practical importance. We should note, however, that our estimates of the total utility and consumer surplus of each commodity are based on its demand price, ceteris paribus, when the price of the commodity rises to rare values. With this necessary price: when the total utility of two commodities used for the same purpose is calculated according to this method, we cannot say that the total utility of the two commodities together is equal to the sum of the total utility of each commodity separately. The fourth quarter continues. Nor is the substance of our argument affected if we consider the fact that the more money a person spends on one thing, the less able he is to buy more of it or another, and the more valuable money is to him. large (in technical terms, each new expenditure increases the marginal value of money to him).But while its substance remains the same, its form has thereby become more complicated without corresponding gains; for there are few practical problems of importance for the corrections made under this subject. However, there are some exceptions.For example, as Lord Giffen has pointed out, the rise in the price of bread so drained the means of poor working families, and the marginal utility of raising money was so great for them, that they had to save meat and the more expensive starch. The consumption of sexual food: while bread is still the cheapest food they can get and buy, they consume not less, but more.However, this situation is rare; if we encounter such an occasion, we must study it according to the actual situation of each occasion. It has been said before that we are quite incapable of guessing correctly how much people will buy any thing if its price differs greatly from what it is customarily paid for; When the difference is large, what will be the required price of this item.Our list of want-prices, therefore, is very speculative, except that it approximates the usual prices; and the best estimate we can make of the full quantity of the utility of any one thing is bound to be very much in error.However, this difficulty is practically unimportant.For the main application of the theory of consumer surplus concerns changes in consumer surplus as the prices of commodities of which we speak vary close to ordinary prices: that is to say, it allows us to use only our Information that is readily available.These words are especially powerful when applied to necessities. Section V The above two sections say that the problem of assumed common wealth has been considered. There is another consideration that tends to be overlooked in estimating the dependence of welfare on material wealth.Not only does a man's happiness often depend more on his own physical, mental and moral health than on his external conditions, but even among these many conditions which are of the utmost importance to his true happiness are apt to be derived from him. missing from the wealth catalog.Some conditions are a gift of nature; if they were the same for everyone, they could, indeed, be left alone without much harm; but in fact they vary widely from place to place.Yet much more of these conditions is an element of common wealth, which is often left out in the calculation of individual wealth; but when we compare parts of the modern civilized world, common wealth becomes important, and even more so when we compare our own time with those that came before. At the end of our study we shall examine in detail common activities such as street lighting and watering for the common good.The co-operative, which buys for personal consumption, is more advanced in England than elsewhere: but the co-operative, which buys for the purpose of trade what is wanted by the farmer and others, has not lagged behind in England until very recently.Both kinds of co-operative societies are sometimes called organizations of consumers; but they are really organizations for the ease of labor in certain branches of enterprise, and they are not so much a matter of consumption as of production. Section 6 Benoy's opinion.Broader aspects of wealth utility. When we speak of welfare as dependent on material wealth, we mean the inflow of welfare as measured by the influx of received wealth and the resulting inflow of ability to use and consume that wealth.A man's existing wealth, from the use and other means of which it produces happiness, of course also counts the pleasure of possession: but there is no direct relation between his existing wealth and his general happiness.For this reason, when we speak of the rich, the middle class, and the poor in this and previous chapters, we have said that they each have large, middle, and small incomes—not possessions. According to the opinions put forward by Daniel Benoy, we can think that a person's satisfaction from his income begins when his income is sufficient to maintain his life, and every time his income increases in successive equal proportions , satisfaction also increases with the same amount, and when income decreases, satisfaction also decreases accordingly. But, after a while, new wealth tends to lose much of its appeal.In part, this is the result of habituation; and habituation takes away much pleasure from the comforts and luxuries to which men are accustomed, though they would suffer more if they lost them.This is partly due to the fact that increasing wealth often accompanies old age, weariness, or at least increased nervous tension; living habit. There are some Buddhist believers in every civilized country. According to Buddhist teachings, indifference and tranquility are the noblest ideals of life; It's about wanting.Others hold the opposite view, arguing that the occurrence of new desires and desires is always beneficial, because it encourages greater effort.As Spencer puts it, these people seem to have mistakenly believed that life is to work, rather than work to live. The truth seems to be this: that human nature is so constituted that unless man has some hard work to do, some difficulty to overcome, he is quick to degenerate; and strenuous effort is necessary to physical and moral health.The prosperity of life depends upon the development and activity of the most numerous and noble faculties possible.There is intense pleasure in the passionate pursuit of any end, whether it be success in business, the advancement of the arts and sciences, or the betterment of the human condition.The highest kinds of constructive work necessarily tend to intersect in periods of overstretch and in periods of weariness and stagnation; A moderate income, obtained in a stable and fairly steady employment, affords the best opportunity for forming those habits of mind, body, and spirit, and only in these habits can true happiness be found. Among all classes of society there is a certain misuse of wealth.In general, though we may say that every increase in the wealth of the working class increases the opulence and nobility of human life, since the increased wealth is chiefly employed in the satisfaction of genuine desires; Among the workers— Even more so, perhaps, in new countries, there are signs of an increase in the pernicious desire for ostentation of wealth, which has long been the chief bane of the well-to-do classes in civilized nations.Laws against extravagance are useless; but it would be an advantage if the moral mood of society would save men from all kinds of ostentation of personal wealth.It is true that there is a real and precious pleasure to be derived from proper luxury: but this pleasure is at its greatest when there is no personal vanity on the one hand and no tinge of envy on the other; as concentrated in public buildings , parks, public collections of art, and public competitions and amusements, that is.The pursuit of wealth is a noble end so long as it is used to provide for the necessities of life and culture of each family, and for the many noble forms of entertainment for common use; increase with the increase of those noble activities which we promote with our wealth. Once the necessaries of life are in place, each should seek to increase the beauty of what he has, without increasing their number or splendor.Artistic improvements in furniture and clothing train the higher faculties of those who make them, and are a growing source of happiness to those who use them.But if instead of seeking a high standard of beauty, we devote our increased resources to increasing the complexity and intricacies of our household objects, we will not be able to derive real benefit and lasting happiness from them.If each person buys fewer and simpler things, and is willing to take the trouble to select them for the sake of real beauty, he will certainly take care to get a good value to cover his expenditure, but he would rather buy a few by well-paid laborers. The world would be a much better place if you buy things that are well-made instead of buying things that are poorly made by low-wage laborers. We have gone beyond the proper scope of this paper; the study of the effect on the general welfare of the manner in which each individual spends his income is the study of a more important application of economics to the art of living.