econ 101 – wealth creation

When economists talk about wealth creation, they are usually referencing the differentials in what value people are willing to pay from something and what the value the seller would be willing to sell for that same thing. This is known as consumer surplus and supplier surplus.

For example, I buy pop at $7 per 24-pack. If it is on sale for $6 per 24-pack then over $1 of wealth is created (my $1 consumer surplus plus whatever supplier surplus there is). The seller might really be willing to sell the pop for $5.50 per 24-pack. In this scenario the transaction creates $1.50 of surplus. Both parties gain more than their value of the item. This is why trade, even international trade, is a win-win scenario. Both parties win and are better off than they are before the transaction.

As a corollary, where there is no trade there is no wealth. People only can consume what they themselves can produce. This is impoverishing, as illustrated by the video of an individual attempting to make his own toaster (even then he uses countless inputs from other people).

Think of how wealthy my $30 internet connection makes me. There is a YouTube video in which they ask people how much money they would be willing to accept in order to never use the internet again. Average people are getting millions of dollars worth of consumer surplus per person although they contribute and pay next to nothing. This is wealth, not monochrome pictures of dead presidents.

About christopher fisher

The blog is meant for educational/entertainment purposes. All material can be used and reproduced in any length for any purpose as long as I am cited as the source.
This entry was posted in Econ 101, Economics, Standard of Living, Trade. Bookmark the permalink.

One Response to econ 101 – wealth creation

  1. Pingback: economics in video games | reality is not optional

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