My Consumer Surplus Story
I said here that I would tell my consumer surplus (CS) story that I often tell when I teach the concept. Here it is.
In September 1972, my friend Harry Watson (aka J.W. Henry Watson) and I were traveling from Canada to the United States to start the econ Ph.D. program at UCLA. We drove a 1962 Mercury station wagon that Harry had bought for $200 and towed a homemade trailer loaded to the gills with our stuff, including my already-sizable collection of books. Our whole get-up looked almost like something out of The Grapes of Wrath. Harry picked me up in Winnipeg and we took along a friend of mine, Duncan McMonagle, who wanted a ride to Vancouver. We were in the Canadian Rockies just outside of Lake Louise and, in early September, it was snowing. Our car broke down. Harry, who knows cars, figured out that it was–I’m going from imperfect memory here–the alternator. The service station we went to didn’t have that alternator in stock and it would need to be ordered from Toronto, flown to Calgary, and bussed to Lake Louise. Price for part and shipping: approximately $90. Time: 2 or 3 days, during which we would pay about $25 a night at the cheapest motel we could find. So our overall cost for this needed repair would be > $150.
I was ready to say yes: what choice did we have? But Harry asked if it could still be ordered in time if we waited until mid-afternoon. It could. Then he hitchhiked east to Banff and found a junk yard. When he got there, it was noon and so the owner wasn’t there. Instead, it was a teenage boy who, yes, did, have the part. The owner might have, assessing our situation, charged $20 or $30. The kid went with a standard price list (I’m assuming) and charged–are you ready?–$2. Harry was back within an hour, clicking his heels with joy. We installed the part and went on our way, having lost only about 3 hours. That’s consumer surplus.