Australia's Gambling Industries - Productivity Commission

for an explanation of how the alternative level of spending was derived).
Recreational gamblers are estimated to spend only $645 each in a year.
This results in an estimated annual expenditure by all problem gamblers of $438
million, less than 15 per cent of their current spending of $3.6 billion.
The demand condition for problem and recreational gamblers is illustrated in figure
C.3. Two demand schedules are drawn for problem gamblers. The first is their
observed demand (D p ), representing current consumption and the assumption that
their demand is less sensitive to price changes than that of recreational gamblers.
Their demand schedule in the absence of their compulsion is depicted as Dpa,
representing the assumption that problem gamblers would consume considerably
less in the absence of their compulsion.
For problem gamblers in the absence of the compulsion, there is an element of
consumer surplus indicated by area b, where the value they receive is more than the
price. As the quantity of gambling they would undertake in the absence of the
compulsion is small (typically problem gamblers spend almost 20 times the amount
per annum as recreational gamblers and 5 times the amount per annum than regular
recreational gamblers), this surplus is likely to be small.
Importantly, spending in excess of the ‘recreational’ level is not all ‘lost’ to the
problem gambler. It does have some value, even if this value is less than the amount
of money paid. The value is represented by the area under the demand schedule in
excess of the ‘recreational’ level of consumption. The loss that they face is
represented by the area d. This area can be seen as representing ‘negative’ consumer
surplus in that the real benefit (represented by D pa in the absence of the compulsion)
is less than the price they are paying. This may exceed the amount of ‘true’
consumer surplus (area b) that they derive from the activity.
For recreational gamblers, their consumer surplus is indicated by the area c.
ESTIMATING
CONSUMER SURPLUS
C.11