Benefit-Cost AnalysisWELFARE MEASUREMENT IN COST-BENEFIT ANALYSISWelfare Measurement in Cost-Benefit Analysis
Precise Measurements of Welfare for ConsumersWELFARE MEASUREMENT IN COST-BENEFIT ANALYSISWelfare Measurement in Cost-Benefit Analysis
A demand schedule, or demand curve,indicates the quan<ty of a good thatindividuals purchase at various pricesDemand curves slope downwardbecause of diminishing marginal u<lity.But demand curves can be Marshallianor Hicksian.Demand SchedulesWelfare Measurement in Cost-Benefit Analysis
We can develop the difference betweenMarshallian and Hicksian demand bystar<ng from indifference curves.•Two goods, X1and X2•Indifference curve, U0•Budget constraintThe consumers op<mal bundle of goodsin this case is X1and X2where budgetconstraint and indifference curve aretangent.The OpHmal BundleWelfare Measurement in Cost-Benefit Analysis
What happens if the price of X1drops?ShiO in budget constraint and re-op<miza<on of consump<on.The consumers op<mal bundle of goodschanges to X’1and X’2, and they are at anew, higher level of u<lity, U1A Change in the Price of X1Welfare Measurement in Cost-Benefit Analysis
Choices about the quan<ty of X1atvarious prices can be mapped to thedemand curve.For the full set of prices we would havethe complete demand curve.Note that this is an inversedemandcurve.