6- consumer welfare

Question 1

utility problems

Answer 1

ordinal, need large amounts of data to find consumer’s utility function

Question 2

consumer surplus

Answer 2

diff btw how much consumer is willing to pay vs actually pays

Question 3

consumer surplus on graph / D curve

Answer 3

area under D curve = willingness to pay, area under P line = amount paid

Question 4

diminishing marginal utility

Answer 4

with each extra unit of consumption, consumer’s utility decreases

Question 5

inelastic D and P increase on consumer surplus

Answer 5

bigger decrease in CS

Question 6

inelastic D and consumer willingness to switch

Answer 6

less willing to switch

Question 7

elastic D and consumer willingness to switch

Answer 7

more willing to switch

Question 8

if P of a good increases, loss of CS greater if

Answer 8

amount initially spent (on A) is large, demand (for A) is inelastic, larger P increase

Question 9

CS based on ‘uncompensated’ / Marshallian curve

Answer 9

consumer utility allowed to vary within good, welfare can be affected by income and subs effect

Question 10

another way to measure harm by P increase

Answer 10

increase consumer income needed to maintain consumer utility

Question 11

compensated D curve

Answer 11

shows D when consumer is compensated in income, only pure subs effect of P captured, D when consumer kept same IC

Question 12

uncompensated D curve

Answer 12

‘standard’ D curve, showing total effect of P change

Question 13

minimal expenditure (E) necessary to achieve

Answer 13

specific utility under given set of prices

Question 14

E equation

Answer 14

= E(p1, p2) U ̅