Friday, October 3, 2008

Double Stack and Consumer Surplus

Mankiw suggests that this intelligent Wendy's ad illustrates well the economic concept of consumer surplus. I concur, and would add that it also illustrates concepts such as the costs of time and decision making.

1 comment:

Kate - Western Carolina said...

The double-stack fanatic was willing to give a dollar in place of his beloved 99 cent burger. Therefore, his consumer surplus, the difference in amount one is willing to pay and actual amount paid, is 1 cent. Sadly, his buddy took a dollar off him in the process of teaching this and he did not actually get the benefit of that surplus, or not for long.

This commercial is a good example of consumer surplus and econ students more than likely will recognize this but I'm sure Wendy's just wants the public to think, "Hey, with Wendy's I'm getting more than my money's worth. Good deal!"

Actually, if Wendy's food was really as attractive for consumers as they want us to think, the restaurant would do well to increase their prices – this would limit efficiency losses. However, people really like the "dollar menu". To get rid of such deals might hurt business, especially when other restaurants still have them. Unless Wendy's food has an inelastic demand, it will be substituted for other fast food with the cheap prices.