2.1 Welfare Measurement for Consumers(2).pdf - Bene\ufb01t-Cost Analysis WELFARE MEASUREMENT IN COST-BENEFIT ANALYSIS Welfare Measurement in Cost-Bene\ufb01t

2.1 Welfare Measurement for Consumers(2).pdf -...

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Benefit-Cost Analysis WELFARE MEASUREMENT IN COST-BENEFIT ANALYSIS Welfare Measurement in Cost-Benefit Analysis
Precise Measurements of Welfare for Consumers WELFARE MEASUREMENT IN COST-BENEFIT ANALYSIS Welfare Measurement in Cost-Benefit Analysis
A demand schedule, or demand curve, indicates the quan<ty of a good that individuals purchase at various prices Demand curves slope downward because of diminishing marginal u<lity. But demand curves can be Marshallian or Hicksian. Demand Schedules Welfare Measurement in Cost-Benefit Analysis
We can develop the difference between Marshallian and Hicksian demand by star<ng from indifference curves. Two goods, X 1 and X 2 Indifference curve, U 0 Budget constraint The consumers op<mal bundle of goods in this case is X 1 and X 2 where budget constraint and indifference curve are tangent. The OpHmal Bundle Welfare Measurement in Cost-Benefit Analysis
What happens if the price of X 1 drops? ShiO in budget constraint and re- op<miza<on of consump<on. The consumers op<mal bundle of goods changes to X’ 1 and X’ 2 , and they are at a new, higher level of u<lity, U 1 A Change in the Price of X 1 Welfare Measurement in Cost-Benefit Analysis
Choices about the quan<ty of X 1 at various prices can be mapped to the demand curve. For the full set of prices we would have the complete demand curve. Note that this is an inverse demand curve.

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