Social Surplus

student007

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

EnumaElish

Loosely, private surplus is value minus price; social surplus is value minus cost.

student007

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?

EnumaElish

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.

student007

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?

EnumaElish

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.

Smurf

Is social surplus synonymous with public surplus?

EnumaElish

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.

Smurf

... I think I'll just ask my instructor. (he has graphs)

EnumaElish

Good idea, "a picture is worth 1,000 words."

But bear in mind that "words are cheap."