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As ever, it’s the customer who really benefits from a transaction

Summary:
We don’t have to go far to find folks who insist that every transaction means the customer is being ripped off - look the supplier is making a profit, that must be evil! These people rather missing the point, in a voluntary transaction that consumer must also be gaining something they value.As it happens we can even assign rough values to who gets the most out of this. Profits are, at most, some 10% of GDP (after we subtract depreciation etc). The usual calculation of the consumer surplus - the amount of value that consumers get that they don’t have to pay for - is some 100% of GDP. A very crude comparison indeed but the weighting seems to be 10:1 in favour of those consumers.We also find ourselves with an example out in the wild:The eurozone’s most powerful banking groups have demanded

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We don’t have to go far to find folks who insist that every transaction means the customer is being ripped off - look the supplier is making a profit, that must be evil! These people rather missing the point, in a voluntary transaction that consumer must also be gaining something they value.

As it happens we can even assign rough values to who gets the most out of this. Profits are, at most, some 10% of GDP (after we subtract depreciation etc). The usual calculation of the consumer surplus - the amount of value that consumers get that they don’t have to pay for - is some 100% of GDP. A very crude comparison indeed but the weighting seems to be 10:1 in favour of those consumers.

We also find ourselves with an example out in the wild:

The eurozone’s most powerful banking groups have demanded long-term access to London’s multi-trillion dollar derivatives trading market in a fresh blow for Brussels’ plans to seize business from the City.

In a joint letter, finance trade bodies said that the bloc faces a “cliff edge” unless it extends exemptions that allow trades by European Union institutions to take place in the UK and other major markets.

The City does indeed provide varied services to companies across Europe and the world. The City makes a fat income from doing so, huzzah for the City. The EU has been muttering for decades that perhaps all that value generation should instead be within other countries - the City as pirates sailing off with all those profits. But when push comes to shove look what happens.

The customers insist that access to the value they gain is far more important than who gets the relatively trivial - trivial to the value those consumers of the services gain - profits from the process.

It’s the customer who benefits from voluntary transactions which is why said customers, consumers, partake of them.

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Tim Worstall
Tim Worstall is a British-born writer and Senior Fellow of the Adam Smith Institute. Worstall is a regular contributor to Forbes and the Register. He has also written for the Guardian, the New York Times, PandoDaily, the Daily Telegraph blogs, the Times, and The Wall Street Journal. In 2010 his blog was listed as one of the top 100 UK political blogs by Total Politics.

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