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Unformatted text preview: 2010-03-301ECON201Consumer BehaviorCompensated Demand CurveEvaluating Consumer Welfare (II)•Equivalent variation and compensating variation methods use indifference curves•Relation between indifference curves and demand curves also allows us to use demanddemand curves also allows us to use demand curves as an alternative method of evaluating consumer welfareUsing the Demand Curve to Measure Consumer WelfarePrice/Minute0.500.400.35Can be viewed as a benefit curveThe area under the demand curve =total benefitof the amount consumedConsumer Surplus = The area underthe demand curve above priceP = 0.35minutes1230.2540.1550.106Using the Demand Curve to Measure Changes in Consumer WelfarePrice/Minute0.500.400.35What is the change in consumer surplusif the price falls from $0.35 to $0.15?P = 0.35minutes1230.2540.1550.106P = 0.15= $0.70 increase in consumer surplusUsing the Demand Curve to Measure Changes in Consumer Welfare—Including Fractional UnitsPrice/Minute0.500.400.35What is the change in consumer surplus...
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- Fall '10
- Supply And Demand