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August 09, 2007

Zero sum or net gain

Shoppers often have the attitude that the seller is in the driver's seat. Economists call it the "zero-sum attitude," and N.C. State University's Mike Walden explains an alternate view.

"The idea is that most of us have to have products or services -- that the seller is going to get as much as they can; we are going to get less. And really the seller is coming out on the long end of the stick; we are coming out on the short end of the stick," Walden says of the attitude.

But "economists have a different take on this: We think that actually trading —- which is really what you do when you buy things -- results in gains for both parties," he continues. "Obviously the seller is gaining if they are able to sell that product at more than what it cost them to make.

"But we also argue that buyers gain. Most of us do have alternatives to buying something," adds Dr. Walden, a professor of agricultural and resource economics. "For example, if you are looking at a car and you think car prices are too high well, one idea would be to carpool or take public transportation or live closer to work. I know these are all hard things to think about, but they are all alternatives.

"So if you do buy a car, even though you may think you paid too much for it, presumably at least at some level you think you are getting more benefit out of that car than you had to pay," he says. "The benefits (are) ... having accessibility and flexibility in driving to work and shopping and to school and to vacations and so forth.

"So economists argue that trading actually results in net gains overall: gains to both the seller as well as to gains to the buyer."

Posted by deeshore at August 9, 2007 08:00 AM