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student007
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I'm in first-year business school, and am taking economics for the first time. I'm not too clear on what exactly a social surplus is? Can anyone explain using simple examples, just so that I may have this clarified? Thanx
Is social surplus synonymous with public surplus?EnumaElish said:Loosely, private surplus is value minus price; social surplus is value minus cost.
No. Public [sector] surplus relates to the public (as opposed to private) sector, and normally means an accounting surplus or a surplus in terms of resources similar to a budget surplus. Social surplus is also counterposed against private surplus, but in a different context. Private surplus is a measure of the total utility realized through market transactions. But not all utility is realized via market transactions. Examples are externalities and public goods. As a result, part of the surplus that is enjoyed by the society as a whole is not captured by private surplus If economic externalities or public goods did not exist, then social surplus would have been identical to private surplus (= producer surplus + consumer surplus).Smurf said:Is social surplus synonymous with public surplus?
Social surplus, also known as economic surplus, is the difference between the total benefits received by society from a product or service and the total cost of producing it. In other words, it is the net gain to society from the production and consumption of a good or service.
Social surplus is calculated by finding the difference between the equilibrium price and the cost of production. Equilibrium price is the point where the quantity demanded equals the quantity supplied, and it represents the market price. The cost of production includes both the explicit costs, such as materials and labor, and implicit costs, such as opportunity costs.
Understanding social surplus is important because it helps economists and policymakers make decisions about resource allocation and market efficiency. It also gives insight into the overall well-being of society and can be used to measure the success of economic policies and programs.
Social surplus contributes to economic growth by providing incentives for producers to increase production and consumers to consume more. As social surplus increases, it leads to higher profits for producers, which can then be reinvested in the economy. This can result in economic growth and an increase in overall welfare.
Yes, social surplus can be negative. This means that the total cost of producing a good or service exceeds the total benefits received by society. This can happen when there is market inefficiency or externalities, such as pollution, that are not accounted for in the cost of production. In such cases, the net gain to society is negative, resulting in a negative social surplus.