Maximization of Long-Term Consumer Surplus Is the Optimal Economic Policy
15 Pages Posted: 6 Jun 2018
Date Written: May 15, 2018
In the real world, markets are never in equilibrium and there is insufficient information to determine the ideal policy. Maximizing long-run consumer surplus is a heuristic for approximating optimal economic policy. Ideally, if the economy was at an efficient equilibrium, we’d maximize both total welfare and consumer surplus simultaneously. The reason for focusing on consumer surplus is that producers have the resources to protect their surplus and to exploit consumers, while the reverse is rarely true. Given potential large dead weight losses from attempts to transfer consumer surplus, creating barriers to such transfers could increase overall welfare.
Keywords: economic policy, consumer surplus, efficiency, merger analysis, regulation
JEL Classification: D6, D72, K2, L41, L51, Q48
Suggested Citation: Suggested Citation