Understanding Social Surplus in Economics for Beginners

[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]

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

Is social surplus synonymous with public surplus?

 

[EnumaElish]

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.

 

[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."