Document Type

Article

Journal/Book Title/Conference

Economics Research Institute Study Paper

Volume

93

Issue

4

Publisher

Utah State University Department of Economics

Publication Date

1993

Rights

Copyright for this work is held by the author. Transmission or reproduction of materials protected by copyright beyond that allowed by fair use requires the written permission of the copyright owners. Works not in the public domain cannot be commercially exploited without permission of the copyright owner. Responsibility for any use rests exclusively with the user. For more information contact the Institutional Repository Librarian at digitalcommons@usu.edu.

First Page

1

Last Page

20

Abstract

Many economists agree that the best measure of consumer's surplus is the compensating variation consumer's surplus (eVeS); however, because the compensated demand function is not observable, there are problems of using this measure in empirical applications. There are ways around this limitation that work well under certain circumstances; however, until now there has been no solution that always works well. We introduce a successive approximations method of calculating compensating variation consumer's surplus using data from the ordinary. demand curve. In doing so we numerically identify the compensated demand function over the price interval involved. This procedure can be implemented on any ordinary demand function that is . '. consistent with a quasi-conc'ave utility ' function, and does riot require that we integrate back to .' . the utility function. We demonstrated that the error of our approximation can be made extremely "small." We also use our method to calculate eves for three applications in the literature where Marshallian consumer's surplus was reported.

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