No Result
View All Result
Success American Investors
  • News
  • Economy
  • Editor’s Pick
  • Investing
  • Stock
  • News
  • Economy
  • Editor’s Pick
  • Investing
  • Stock
No Result
View All Result
Success American Investors
No Result
View All Result
Home Economy

Teaching consumer surplus with the Becker-DeGroot-Marschak method in an environmental and resource economics course

by
September 15, 2023
in Economy
0
0
SHARES
2
VIEWS
Share on FacebookShare on Twitter

The other day in my intro environmental and natural resource economics class we used the BDM method to elicit willingness to pay (WTP) values for an App State travel tumbler (I paid $26 with a faculty discount at the university bookstore). I explained the BDM with these slides [Download BDM] and each student had a “payment card” for revealing their WTP [Download BDM-WTP]. The average WTP was $6.23 (n=26). I entered the WTP values into Excel, sorted them from highest to lowest and plotted them along with the randomly chosen price ($7). At this price, 12 of 26 students would have purchased the tumbler and enjoyed a consumer surplus of $45 (CS = WTP – price).

As a preview of what we are going to do later in the semester, I simulated a dichotomous choice stated preference exercise. For each WTP value I randomly chose a price that ranged from $2 to $14 (average = $5.69) and simulated whether the consumer would purchase the tumbler or not. Fifty percent of the consumers would purchase the product. I then estimated a linear probability model: Pr(purchase=1) = 0.711 – 0.0372 x Price. Plotting this line and calculating the consumer surplus area of the triangle yields a CS estimate of $6.81 — very close to the actual CS average. I told them that this valuation approach is called the dichotomous choice WTP survey approach and is used in E&R economics (and marketing) to estimate WTP values for environmental amenities and consumer goods.

I randomly chose one of the student’s WTP sheets and the WTP was less than $7. Then I chose another and the WTP was $15. This student paid me $7 and is, apparently, enjoying $8 of consumer surplus. 

I think I’ve convinced many of the students in this class that consumer surplus is equivalent to getting a “good deal”. Now the trick is to convince them that WTP measures the value of nonmarket goods … too be continued.

Previous Post

Kondrashov’s Journey to the Frontlines in Egypt as a Soviet Soldier

Next Post

Dollar Hegemony Is Ending Due to Geopolitical Changes

Next Post

Dollar Hegemony Is Ending Due to Geopolitical Changes

Get the daily email that makes reading the news actually enjoyable. Stay informed and entertained, for free.
Your information is secure and your privacy is protected. By opting in you agree to receive emails from us. Remember that you can opt-out any time, we hate spam too!
  • Trending
  • Comments
  • Latest
Vertica: The new Israeli start-up challenger to Viagra proving ‘life-changing’ for men with ED

Vertica: The new Israeli start-up challenger to Viagra proving ‘life-changing’ for men with ED

February 14, 2024

Last Day to Give in 2023!

December 31, 2023
Idaho Bucks Managed Care Trend

Idaho Bucks Managed Care Trend

December 5, 2023

The Producer Price Index

September 9, 2023
UK government considers rescue deal for Speciality Steel amid fears of collapse

UK government considers rescue deal for Speciality Steel amid fears of collapse

0

0

0

0
UK government considers rescue deal for Speciality Steel amid fears of collapse

UK government considers rescue deal for Speciality Steel amid fears of collapse

July 11, 2025
UK economy shrinks again in May, fuelling fears of faltering recovery

UK economy shrinks again in May, fuelling fears of faltering recovery

July 11, 2025
MPs warn UK must not weaken listing rules for Shein amid human rights concerns

MPs warn UK must not weaken listing rules for Shein amid human rights concerns

July 11, 2025
PPE Medpro trial ends with defence accusing DHSC of ‘bad claim’ and pandemic scapegoating

PPE Medpro trial ends with defence accusing DHSC of ‘bad claim’ and pandemic scapegoating

July 11, 2025

Recent News

UK government considers rescue deal for Speciality Steel amid fears of collapse

UK government considers rescue deal for Speciality Steel amid fears of collapse

July 11, 2025
UK economy shrinks again in May, fuelling fears of faltering recovery

UK economy shrinks again in May, fuelling fears of faltering recovery

July 11, 2025
MPs warn UK must not weaken listing rules for Shein amid human rights concerns

MPs warn UK must not weaken listing rules for Shein amid human rights concerns

July 11, 2025
PPE Medpro trial ends with defence accusing DHSC of ‘bad claim’ and pandemic scapegoating

PPE Medpro trial ends with defence accusing DHSC of ‘bad claim’ and pandemic scapegoating

July 11, 2025

Disclaimer: SuccessAmericanInvestors.com, its managers, its employees, and assigns (collectively "The Company") do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice. The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.

  • About us
  • Contact us
  • Privacy Policy
  • Terms & Conditions

Copyright © 2025 SuccessAmericanInvestors. All Rights Reserved.

No Result
View All Result
  • News
  • Economy
  • Editor’s Pick
  • Investing
  • Stock

Copyright © 2025 SuccessAmericanInvestors. All Rights Reserved.