My answer is (C) based strictly on necessities of life: food, clothing, and shelter.

In America, we are probably in the elastic part of the demand curve for food. But there is a very inelastic part where the demand curve is far above the price, resulting in huge consumer surplus.

Same with clothes.

Housing might be considered different, especially single-family homes. But half the population lives in apartments where the auction process does not result in elimination of consumer surplus. I would guess that there is a pretty big consumer surplus there, too.

Looking at this question from the perspective of economic history is useful, because until the 1700’s, most people spent nearly 100% of their income on food, clothes, and housing. The world became wealthy mainly by making two of those three things very, very cheap.

Max

As you are probably aware, Paul Newman has a food line, “Newman’s own”, which is quite popular and all profits are donated to charity.

Economically speaking, which provides a greater benefit to humanity?

a) The charitable causes that are paid for with the profits? or
b) The consumer surplus generated via the sale of the goods?

“Leisure isn’t included and that is going up.”

Since more stuff/less work is really what we’re after, right?

What if we added $X/hour for every waking hour not worked? Should we add it to both consumer surplus and GDP (call it Gross Domestic Prosperity?), or just one or the other? How would the relative measures change?

Which raises the question: why are conservatives so desperate for people to work more?

My answer is C. And I would add that the “multiple” of GDP steadily increases.

Justification:
Much of what I own continues to provide me with Consumer Surplus long, long after its purchase price registers in national income accountancy (GDP).

For example, my home heating system purchase registered in 1973 GDP. In the intervening 40 years, some additional 20% of the original purchase price has been spent on maintenance, registering in national income accounting in those years, as of course did my purchases of fuel/energy. Two weeks ago, my geographic location in the U.S. experienced a full week of sustained dead-air temperatures well below zero – my heating system, registering in national income accounting in 1973, provided me with ENORMOUS Consumer Surplus in February 2014. And that Consumer Surplus, realized (at least) in February 2014, will not be included in 2014 national income accounting.

Am I misrepresenting the concept of Consumer Surplus here in any way?

One of the most concise, powerful and important statements I’ve seen you post over the years Arnold, is that, “The U.S. economy is not just a GDP factory.” I’d like to hope that more “economists” would realize that as being true.

1) GDP is (whenever possible) valued at a market price and Market price = marginal utility < total utility (diminishing marginal utility). So total utility is larger than GDP for all things that are purchased in well functioning markets. This points to C.

2) Leisure isn't included and that is going up. So is all kinds of essentially free entertainment on the web. Youtube is also making home production more valuable. This also points to C.

3) There is a growing fraction of stuff in GDP that is valued at "prices" from poorly functioning markets (education, health care, and much of government spending). This points to A.

On the balance I'm fairly confident that it's C because I can think of many more things that are a great value than things that are a terrible value.

The expansions of scope, scale, and quality of goods and services has vastly expanded and done so faster than the expansion of producer revenues. Producers abilities to capture these gains look poor when we consider how much more leisure consumers are now able to afford. Producer profitability has been as much driven by bending cost curves down as it has price discrimination. Therefore, profit growth is multicausal and misleading.

The mistake to equate the larger diversity of consumers and the larger diversity of goods. I still listen to the same amount of music, and my tastes are just as specialized. It is just that my consumer search is shortened since the seventies.

But if that’s the case, when I buy a coffee for $1 for which I would have paid $3, where does that “extra” $2 in consumer surplus come from? Shouldn’t it already be in the 90%?

What’s the solution? Does consumer surplus only make sense at the margin, holding everything else constant? In that case, you can’t really add it up, right?

Still thinking about this …