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History and troubles of consumer surplus

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  • Miroslav Svoboda

Abstract

The paper is focused on history of the concept of consumer surplus presented by Alfred Marshall as an economic tool to measure benefits and losses resulting from changes in market conditions. As it assumes constant marginal utility of money, it was refused by further development of economics. Subsequently, John Hicks redefined the concept using indifference analysis, inducing the use of compensating and equivalent variations in welfare economics. However, we reveal substantial errors in the Kaldor-Hicks-efficiency justification of economic policy and suggest an alternative use for the concept of consumer surplus - in an analysis of economic discrimination.

Suggested Citation

  • Miroslav Svoboda, 2008. "History and troubles of consumer surplus," Prague Economic Papers, Prague University of Economics and Business, vol. 2008(3), pages 230-242.
    • Handle: RePEc:prg:jnlpep:v:2008:y:2008:i:3:id:331:p:230-242
    DOI: 10.18267/j.pep.331
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    References listed on IDEAS

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    1. Irvine, Ian J & Sims, William A, 1998. "Measuring Consumer Surplus with Unknown Hicksian Demands," American Economic Review, American Economic Association, vol. 88(1), pages 314-322, March.
    2. Frank H. Knight, 1944. "Realism and Relevance in the Theory of Demand," Journal of Political Economy, University of Chicago Press, vol. 52(4), pages 289-289.
    3. J. R. Hicks, 1942. "Consumers' Surplus and Index-Numbers," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 9(2), pages 126-137.
    4. J. R. Hicks, 1941. "The Rehabilitation of Consumers' Surplus," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 8(2), pages 108-116.
    5. Haveman, Robert H & Gabay, Mary & Andreoni, James R, 1987. "Exact Consumer's Surplus and Deadweight Loss: A Correction," American Economic Review, American Economic Association, vol. 77(3), pages 494-495, June.
    6. Peter C. Dooley, 1983. "Consumer's Surplus: Marshall and His Critics," Canadian Journal of Economics, Canadian Economics Association, vol. 16(1), pages 26-38, February.
    7. Robert L. Bishop, 1946. "Professor Knight and the Theory of Demand," Journal of Political Economy, University of Chicago Press, vol. 54(2), pages 141-141.
    8. Hausman, Jerry A, 1981. "Exact Consumer's Surplus and Deadweight Loss," American Economic Review, American Economic Association, vol. 71(4), pages 662-676, September.
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    Cited by:

    1. Grimaldi, Raffaele & Beria, Paolo, 2013. "Open issues in the practice of cost benefit analysis of transport projects," MPRA Paper 53766, University Library of Munich, Germany.
    2. Peter Cohen & Robert Hahn & Jonathan Hall & Steven Levitt & Robert Metcalfe, 2016. "Using Big Data to Estimate Consumer Surplus: The Case of Uber," NBER Working Papers 22627, National Bureau of Economic Research, Inc.
    3. Gohar, Abdelaziz A. & Cashman, Adrian, 2016. "A methodology to assess the impact of climate variability and change on water resources, food security and economic welfare," Agricultural Systems, Elsevier, vol. 147(C), pages 51-64.

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    More about this item

    Keywords

    consumer surplus; compensating variation; Alfred Marshall; John Hicks;
    All these keywords.

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • N30 - Economic History - - Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy - - - General, International, or Comparative

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