Have you ever recieved a gift for Christmas that you would have never bought for yourself, even if you had the money and inclination to do so? If I buy you something for $100 and it is something that you would have never paid more than $50, is this an efficient outcome for you AND society? The only way it would be so is if the gift value, or sentimental value ,you received from the gift-giver is equal to the $50 you would be willing to pay for that gift PLUS $50 in sentiment you recieve from recieving the gift. You have to factor out the value lost to society if you do not use the gift to its maximum value. If you dont use it, or under-utilize it, then there is a loss to society in terms of the multitude of resources used to produce the gift. We have a mis-match in what the giver pays for a gift (the cost in societal resources) and how much the recipient values the gift (societal cost in resources PLUS sentiment). Do I really do you a favor, or show you sentiment, if I buy you a gift that you dont value and will not use? Have I really done society a disservice by spending money and sending a market signal that the particular gift is useful and/or desirable? Give this a thought on Christmas morining as you are opening your gifts...Hope I did not ruin the holiday for you, but this is what knowledge of economics will do to you...:)
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