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Consumer Surplus: Getting More Than You Paid For

Consumer Surplus: Getting More Than You Paid For

Consumer surplus is the excess value you get from something when you pay less than you were willing to pay.

I’ve made some money and get a lot of joy from my Starbucks coffee. So if my coffee cost $20, I would pay it.

But Starbucks can’t price the coffee at $20 just for me, because they’re selling the exact same product to others. So I’m getting a lot of consumer surplus out of the coffee.

All businesses generate consumer surplus. Amazon might be a trillion-dollar company, but I’ll bet they’re generating trillions in consumer surplus through people’s willingness to pay for convenience.




Negotiations are won by whoever cares less. Negotiation is about not wanting it too badly. If you want something too badly, the other person can extract more value from you.

Once you’ve been in a good relationship with somebody for a while whether it’s business or romantic life gets a lot easier because you know that person’s got your back. 

Price discrimination means you can charge people based on their propensity to pay.

You’re joining a startup and getting stock options, and the founder says, “This company is going to be worth $1 billion, and I’m giving you 0.1% of the company; therefore, you’re getting $1 million worth of stock.”

An externality is where there’s an additional cost imposed by whatever product is being produced or consumed, that’s not accounted for in the price of the product.

The Kelly criterion is a popularized mathematical formulation of a simple concept: Don’t risk everything. Stay out of jail. Don’t bet everything on one big gamble. Be careful how much you bet each time, so you don’t lose the whole kitty.

It is a game theory by Thomas Schelling. It’s about multiplayer games where people respond based on what they think the other person’s response will be.

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