C5: Welfare Analysis

Question 1

Compensating Variation (CV)

Answer 1

Amount of additional money we need to give the consumer so they’re as good off after the price change as they were before it.

Question 2

CV

Answer 2

E(P’1,P2,U) - E(P1,P2,U)

(Hicksian after P change - Hicksian before price change)

Question 3

Numerative good

Answer 3

Good whose priced is normalized to =1

(En CV P2=1, Good 2 es numerative good)

Question 4

Grafico CV

Answer 4

Grafico CV

Question 5

Consumer surplus

Answer 5

Height of demand curve gives us marginal benefit of each unit.

Graph

Question 6

Change in CS

Answer 6

Integral esa (respecto Pg)

Question 7

CV vs changeCS

Answer 7

CS only focus on a single market whereas CV on all markets (due to income effect)

Question 8

Graph CV vs changeCS

Answer 8

Grafico Hicksian and Marshalian demand con las shaded areas

Question 9

Calculo CV

Answer 9

Integral Hicksian respecto P1 (arriba: nuevo precio, abajo: antiguo)

Question 10

Calculo change CS

Answer 10

Integral Marshalian respecto P1 (arriba: nuevo precio, abajo: antiguo)

Question 11

Dif CV changeCS

Answer 11

diferencia entre ambas integrales (H-D)
= Income effect

Esto es el approximation error

Question 12

Cuanto mas alto zeta o YED (en Slutsky)

Answer 12

Mas income effect
->
Mas approximation error

Question 13

Pq approximamos CV usando changeCS

Answer 13

Utilidad no se puede medir (necesaria para CV)