Abstract
This chapter provides the description, mathematical treatment and graphical illustration of the measures of well-being used by the book as well as the assumptions underlying each of these measures and the hierarchical relation between them.
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Notes
- 1.
Recall that homothetic functions make the money-metric utility functions concave, which is a desirable property for welfare analyses (Ali Khan and Schlee 2017).
- 2.
See Hicks (1942).
- 3.
Note the use of CS for consumer’s surplus variation rather than consumer surplus.
- 4.
See Layard and Walters (1978).
- 5.
- 6.
Recall that the optimal indirect utility provides the consumer’s maximal attainable utility given a price vector and a given amount of income. Conversely, optimal expenditure provides the minimum amount of money an individual needs to spend to achieve some level of utility.
- 7.
Note that this result is based on the assumptions of moderate change in price or in the case of a straightforward line shape of the demand function.
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Araar, A., Verme, P. (2019). Assumptions and Measures. In: Prices and Welfare. Palgrave Pivot, Cham. https://doi.org/10.1007/978-3-030-17423-1_2
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