You’ll need to fix the start of your post: (emphasis mine):
Alice loves widgets. She would pay $100 for a widget. She goes on line and finds Bob offering widgets for sale for $100. Err, that is not really what she had in mind.
That’s exactly what she had in mind since she would pay $100. I think it’s better to change it to “Alice would pay $95 for a widget”.
A couple of other points. Eve’s life is very slightly easier since prices of widgets change which means she can estimate part of the demand curve and then estimate the consumer surplus from there. Also, GDP and what it measures has nothing to do with the consumer surplus.
Perhaps she’d be willing to pay $100 for a widget if there were no other option, but would nonetheless prefer to pay less if that can be arranged.
Transaction and information costs are a huge problem. People spend a lot of time paying them in actual life — for instance, driving to work or to the store; standing in lines; searching for bargains; clipping coupons; and so on.
Alice is willing to incur an email round-trip time to distinguish a world where $100 widgets are the only offer from a world in which a $90 widget is also available. She considers that the delay of one round-trip of haggling is worth $10 times the probability of a lower offer existing.
(Other factors obtain, too, like minimizing regret — if she bought a widget for $100 and then immediately saw Bob sell one to Faye for $90, she’d feel like $10 worth of fool.)
You’ll need to fix the start of your post: (emphasis mine):
That’s exactly what she had in mind since she would pay $100. I think it’s better to change it to “Alice would pay $95 for a widget”.
A couple of other points. Eve’s life is very slightly easier since prices of widgets change which means she can estimate part of the demand curve and then estimate the consumer surplus from there. Also, GDP and what it measures has nothing to do with the consumer surplus.
Perhaps she’d be willing to pay $100 for a widget if there were no other option, but would nonetheless prefer to pay less if that can be arranged.
Transaction and information costs are a huge problem. People spend a lot of time paying them in actual life — for instance, driving to work or to the store; standing in lines; searching for bargains; clipping coupons; and so on.
Alice is willing to incur an email round-trip time to distinguish a world where $100 widgets are the only offer from a world in which a $90 widget is also available. She considers that the delay of one round-trip of haggling is worth $10 times the probability of a lower offer existing.
(Other factors obtain, too, like minimizing regret — if she bought a widget for $100 and then immediately saw Bob sell one to Faye for $90, she’d feel like $10 worth of fool.)