U n d e r s t a n d i n g
Va l u e C r e a t i o n
To understand the term social value, it is important fi rst to understand what private value is and what role entrepreneurs play in creating it. The best way to do this is to start with a simple economic
transaction. Suppose I buy an ice cream cone at Ben & Jerry’s for
$2.50. I was willing to pay up to $3 for the cone; Ben & Jerry’s spent
only $2 to make the ice cream cone and bring it to market. I walk
away with 50 cents of psychic benefi t, forming the basis for consumer value (what economists term “consumer surplus”), and Ben &
Jerry’s banks 50 cents of profi t, forming the basis for producer value
(what economists term “producer surplus”). The residual value that
consumers and producers each claim—the value left over after the
transaction—is the lure that brings each party to the market.
The benefi ts to the parties directly engaged in market transactions
are measurable in terms of just this type of residual value. Indeed, the
nearly universal practice of measuring human welfare in relation to