This preview has intentionally blurred sections. Sign up to view the full version.
View Full DocumentThis preview has intentionally blurred sections. Sign up to view the full version.
View Full DocumentThis preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
Unformatted text preview: Consumer Theory (Part 8) Consumer Theory Review Continued ... Price Indices A note on WARP Consumer Theory (Part 8) September 22, 2011 Consumer Theory (Part 8) Consumer Theory Review Continued ... Price Indices A note on WARP Welfare Metrics De&nition The Compensating Variation is de&ned as CV = e ( p , u ) & e ( p , u ) where u = v ( p , w ) If the agent is given a ¡at transfer of wealth equal to & CV, then he can buy a bundle that holds his utility constant as p ! p CV > 0 is good Consumer Theory (Part 8) Consumer Theory Review Continued ... Price Indices A note on WARP Welfare Metrics De&nition The Equivalent Variation is de&ned as EV = e ( p , u ) & e ( p , u ) where u = v ( p , w ) If the agent is given a ¡at transfer of wealth equal to & 1 ¡ EV, then he is just as well o/ under p as he would be without a transfer under p EV > 0 is good Consumer Theory (Part 8) Consumer Theory Review Continued ... Price Indices A note on WARP Shepard&s Lemma Let&s turn variations into integrals CV = Z C h ( s , u ) & ds , u = v ( p , w ) (1) EV = Z C h ( s , u ) & ds , u = v ( p , w ) (2) Consumer Theory (Part 8) Consumer Theory Review Continued ... Price Indices A note on WARP Consumer Surplus What if we don&t have the Hicksian? CS = Z C x ( s , w ) & ds min f CV . EV g ¡ CS ¡ max f EV , CV g Consumer Theory (Part 8) Consumer Theory Review Continued ... Price Indices A note on WARP Consumer Surplus Suppose EV < CV ....
View
Full Document
 '10
 AARON
 Revealed preference, Hermann Paasche, price indices

Click to edit the document details