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* It might help to say “participating in the market” means buying and selling. It might also help to say that CS measures the net benefit to buyers: the value they get from the good is the gross benefit, minus what they pay leaves the net benefit, or CS. Similarly, PS is the net benefit to sellers. I did not put “net benefit” on this slide because it is not in the book. But if you wish, you may add it. After showing this slide in class, I show my students a short scene from the movie “Pretty Woman” as an example of these concepts. In this scene, Julia Roberts is taking a bubble bath in Richard Gere’s hotel room (don’t worry—there’s no nudity!). Gere comes into the bathroom and they negotiate a price for her to “be at his beck and call” for one week. After bargaining for a few seconds, they agree on a price of $3000. A minute later, he says he would have paid $4000 (his willingness to pay), and she says she would have accepted $2000 (her “cost”). From this, we can deduce that CS = $1000, PS = $1000, and total surplus = $2000. If this transaction did not occur, then these characters would not have received these “gains from trade.” Disclaimer: We officially urge you to consult with your institution’s legal advisor to verify that showing this brief clip in your class does not violate any copyright laws. We accept no responsibility in this matter. For example, we absolutely do not recommend that you rent “Pretty Woman” on DVD, download a free evaluation copy of a program like AoA DVD Ripper from the website , and use that software to create a video clip of the above-described segment of Pretty Woman from the DVD, a video clip which could then be moved to the computer in your classroom to be shown in your classroom presentation of this chapter. We urge you to respect the intellectual property of others, and all copyright laws. * Is the market’s allocation of resources desirable? This question is important, because the answer to it has implications
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