Understanding Social Surplus in Economics for Beginners

In summary, a social surplus is the value of all goods and services produced or bought, minus the cost of producing or purchasing them. The composition of social surplus is determined largely through a country's ownership regime, its regulations, and its political process.
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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
 
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Loosely, private surplus is value minus price; social surplus is value minus cost.
 
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Back to the basics. Theoretically, what is a social surplus? I mean, how do countries like the US and China use it (if they even do) to there advantage?
 
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It is the value of all goods and services produced or bought, minus the cost of producing or purchasing them. The composition of social surplus is determined largely through a country's ownership regime, its regulations, and its political process.
 
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So how would a country's usage of a social surplus, let's say China vs. US, differ? Would they both use it for military purposes?
 
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Social surplus is the amount of welfare (value or utility) that a society has gained from the present consumption of all goods and services produced or bought. It is not something that can be used like money or resources. Example: national security is a type of welfare because it allows people to feel secure about their life and property. So if a country has been investing in her military, the part of her social surplus that military investment has produced is a sense of being secure and confident about the present and the future. In this context, "surplus" means "the value placed on a feeling of being secure, minus the cost of investment that has been made to bring about that feeling." It is as if the society had determined (e.g. through a political process) that a feeling of being secure is worth 10 million hours of "productive work." And, the cost of providing this secure feeling takes only 2 million hours of work. The social surplus is then 10 - 2 = 8 million hours of work that the society was ready to do but didn't have to.

But you may be using the term "surplus" in a different context. If so please clarify.
 
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EnumaElish said:
Loosely, private surplus is value minus price; social surplus is value minus cost.
Is social surplus synonymous with public surplus?
 
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Smurf said:
Is social surplus synonymous with public surplus?
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).

P.S. This suprecedes my first post under this thread.
 
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... I think I'll just ask my instructor. (he has graphs)
 
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Good idea, "a picture is worth 1,000 words."

But bear in mind that "words are cheap." :smile:
 

1. What is social surplus in economics?

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.

2. How is social surplus calculated?

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.

3. What is the importance of understanding social surplus in economics?

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.

4. How does social surplus contribute to economic growth?

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.

5. Can social surplus be negative?

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.

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