After an exogenous change in prices or income, compensating variation is the extra amount of money that the consumer requires under the new conditions to bring thier utility back to the original level. Is generally regressive because it compensates less for low income people is always the same as consumer's surplus. is an impractical way to measure the effect on a consumer, because it requires knowedge of the consumer's preferences. is preferred to consumer surplus, as a measure of the effect of the change on the consumer, because the require information is easily available. O is the amount of extra money needed to buy the original bundle, that the consume bought before the price change.
After an exogenous change in prices or income, compensating variation is the extra amount of money that the consumer requires under the new conditions to bring thier utility back to the original level. Is generally regressive because it compensates less for low income people is always the same as consumer's surplus. is an impractical way to measure the effect on a consumer, because it requires knowedge of the consumer's preferences. is preferred to consumer surplus, as a measure of the effect of the change on the consumer, because the require information is easily available. O is the amount of extra money needed to buy the original bundle, that the consume bought before the price change.
Chapter3: Preferences And Utility
Section: Chapter Questions
Problem 3.12P
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Transcribed Image Text:After an exogenous change in prices or income, compensating variation
is the extra amount of money that the consumer requires under the new
conditions to bring thier utility back to the original level.
Is generally regressive because it compensates less for low income people
is always the same as consumer's surplus.
is an impractical way to measure the effect on a consumer, because it requires
knowedge of the consumer's preferences.
is preferred to consumer surplus, as a measure of the effect of the change on
the consumer, because the require information is easily available.
O is the amount of extra money needed to buy the original bundle, that the
consume bought before the price change.
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