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Bigricker12
12.docx1.
There are significant challenges in measuring the consumer surplus of a kind of online services like facebook, Google. We first need to know what is meant by consumer surplus. Consumer surplus is the difference between the prices that a consumer is willing to pay and the price that he actually pays. We need to have a demand curve to measure the actual amount of consumer surplus. It is below the demand curve of the product and above the equilibrium price of the product.
Now while measuring the consumer surplus of these applications like facebook, Google we need to have demand curve and the price that consumers actually pay for enjoying these services. Now for enjoying the services like facebook or Google the users do not pay any price. These firms actually earn revenue from advertisers. As this firms play the role of an advertisement platform, the advertisers pay a large amount to showcase their products here. As compared to users, the advertisers face inelastic demand and pays large amount of price for advertising their products. On the other hand users have multiple applications from where they can get the same functions and with the presence of several substitutes the consumers’ or users’ demand for these applications are varied and elastic. So in the absence of proper demand and exact price for those products, it is not possible to measure the consumer surplus.
Another challenge is that it is not possible to measure the price of those applications, however it is easier to measure the price of broadbands. So with the price of broadbands or internet services we can actually estimate the consumer surplus of these online applications. But the elasticity of these broadband services is not same for all consumers. Some users according to their need for this service like to pay more unlike others.
2.
The challenges in measuring consumer surplus of a free product like online applications is that it is elastic and is hard to compare to what each person would pay for the service. There are people who would pay more for a product such as Facebook and those who would not. Also, among the people who would pay for this product, they would not all pay the same amount. An example would be my Sister in law would probably pay $30 or more for this service. She is a stay at home mother with five kids two of them being 3 year old twins. Facebook is a convenient way for her to connect with friends and the outside world as well as keep her sanity. It is also a way for her to connect with other moms and share advice. My wife, however, would probably not pay more than $10 dollars for this application. It is nice to have, however, we do not have any children and spend much of our time doing what we want with little restrictions. Lastly their is me, I use Facebook but in a very limited basis, I don't care that much about it and could easily live without it. If Facebook charged I would simply cancel my account. So these free services bring different amounts of value to different people.
The internet has brought an abundance of value to the everyday consumer. It is hard to determinate how much consumer surplus it has brought because it is a free service and it is hard to figure how much is being saved. It is a tool that has brought people together and allowed them to learn and share advice with no cost. A good example is, my wife and I wanted to build a retaining wall in our backyard to extend our living space. Before the internet, we would have had to go to a class, enlist the help of others, or pay a contractor to come out and do it for us. With the internet and specifically YouTube and hardware store websites, we were able to learn how to do it for free. Also, it gave us a better sense of accomplishment that we were able to start and finish the project on our own.
