LogFAQs > #603842

LurkerFAQs ( 06.29.2011-09.11.2012 ), Active DB, DB1, DB2, DB3, DB4, DB5, DB6, DB7, DB8, DB9, DB10, DB11, DB12, Clear
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TopicYou are a lower-middle class American...
red sox 777
12/28/11 5:25:00 PM
#56:


We've been through this before. You can't use math in economics that way. The concept of money gives us an approximate way of guessing the "objective worth" of someone's consumer surplus, but it is ultimately a psychic profit that considers non-monetary factors that are ranked on an ordinal and not a numerical scale.

No one is making either of those basic errors. Objects don't have objective worths, and obviously preferences are ordinal only. It doesn't change the analysis on discriminatory pricing, where the seller sets the price as close to the buyer's willingness to pay as possible. This destroys the consumer surplus. If you would pay $100 for an object, you're much happier getting it for $50 than getting it for $99.99.

Also, you have to keep in mind that the odds of exchanges regularly occurring at the exact maximum buying price of the buyer is incredibly low. Most consumers aren't even consciously aware of their own maximum buying prices for various products (quick, tell me the exact amount gas must cost for which you would no longer purchase gas). The odds of an average shopkeeper knowing the exact maximum buying price of any one particular buyer is exceedingly low. That is precisely why barter occurs.

We were discussing the theoretical situation of perfect discriminatory pricing. Obviously this is unattainable, but the closer we get to it, the closer we get to its results.

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