University of Michigan economists Yan Chen, Grace YoungJoo Jeon, and Yong-Mi Kim

Question

University of Michigan economists Yan Chen, Grace YoungJoo Jeon, and Yong-Mi Kim constructed a series of questions to determine the difference in time needed to find answers to them using internet search engines like Google (full disclosure: Google funded the study) and alternative means. On average, it took seven minutes to find answers using search engines and 22 minutes otherwise, resulting in a savings of 3.75 minutes per day for the average user. Next, they assumed the value of time to be $22/hour to construct a measure of consumer surplus from the use of search engines. Given these data, what is the average annual consumer surplus per user? Should Google use these findings to charge users what they should be willing to pay for this service? What impact should the inception of Facebook and Instagram have on the value of consumer surplus compared to its likely value before these services existed?

Explanation / Answer

University of Michigan economists Yan Chen, Grace YoungJoo Jeon, and Yong-Mi Kim

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