February 21, 2022

Prices are the instrument with which the invisible hand directs economic activity.

The difference between the price of an item and what you value it at is consumer surplus. The difference between the economic cost to produce an item (which includes opportunity cost and the price is producer surplus.

So when I shop around for a bargain (even if the options I’ve seen are already priced below what I value it at, it’s because I’m trying to maximize my consumer surplus.


Notes