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Comment by throwaway1980 | Hacker News Reader

throwaway1980

So you're saying that this person was implying that even though the price is 0 euro, the consumer surplus is greater than 100 euro? I can understand this reasoning, so thanks for explaining it. I'm not sure I believe that consumer surplus can be measured outside of controlled psychology experiments, since it's only speculation and talk is cheap.

I guess I always thought that the value (or worth - these are the same, right?) of something in an efficient market is its last sale price, and because vim is widely available for free it's an efficient market with a last sale price of zero.

I would agree with, "The value / worth you derive from your use of vim is greater than 100 euro, assuming you actively use at least one of your vim installations." But then again you could say something similar about most common free or nearly free tools and consumables, for example cutlery, oxygen, and linux.

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I think the efficiency of markets is based around marginal costs and benefits, not absolute costs and benefits. The cost of goods are set by looking at the intersection of the people willing and able to supply the good, and the set of people willing to pay for the good. See, for example, http://en.wikipedia.org/wiki/Supply_and_demand

But the point is that you've found an equilibrium in the system with the current price, current suppliers, and current customers. There are customers would would have happily paid more. There are people who WOULD have bought the good if it cost less, but it doesn't so they didn't. There are people who are happily supplying it and making mad bank. There are people who are supplying it and making a razor-thin margin. There are people who WOULD supply it if the available price were higher, so they're not supplying it right now. The price is an efficient equilibrium point, but it's not the global arbiter of value.

I understand when it comes to something that is normally bought and sold, but I guess it changes for me when it comes to something that is normally given away for free and never sold, except as part of a larger system such as OS X or enterprise Linux.

First, value is relative. To my grand mother, Vim has no value. Second, it is true that the price in an efficient market tends to approach the value most consumers will get out of the product (see http://en.wikipedia.org/wiki/Supply_and_demand). That being said, the value a consumer assigns to a product is always superior to the actual price he is paying, otherwise, why would he bother with the transaction at all? Hence the consumer surplus.

To come back to the original topic at hand, I believe many Vim users value Vim at well over 100 euros. Worth usually refers to value rather than price and this why I believe some people down voted you although you were technically right that Vim's price is 0. Water is not worthless although it is free, etc.

I'm not an economist but that's how I understand it.

In many parts of world water IS NOT free. Indeed, there are places where people kill each other for fresh water.

Just a tiny nitpick... ;)

It still falls free from the sky. People make claims on it after that point. How extreme these claims can get only shows how different price and value are.

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