I was going over consumer surplus in my class on Tuesday and a student gave me a fresh example that he had learned from his economics professor as an undergrad at the U.S. Naval Academy. Here it is.

You go into a store and find a sweater that you like. The price tag on it is $50. You don’t notice another sign saying that there’s a sale on these items and that the discount is 40%. You decide you value the sweater more than $50 and so you go to the sales clerk to buy it. When she goes to ring you up, she tells you that there’s a 40% discount. So you pay $30. You get at least $20 in consumer surplus.

HT to Joe Monahan.