While CV and EV are exact measures of the change in welfare, the change in CS is an approximate measure that is only valid for specialized preferences. At old prices, “Equivalent Variation” is the amount of income necessary to get to the new level of utility. EV is also the area to the left of the Hicksian Demand Curve. – How?

CV, or compensating variation, is the adjustment in income that returns the consumer to the original utility after an economic change has occurred. In the case of a positive economic change (such as a fall in price of a good), CV is often referred to as the maximum a consumer is willing to pay in order to have the economic change happen.

2023年4月10日 · 根据图示，补偿性变化（cv）、等价性变化（ev）和消费者剩余的变化量（ ∆cs ）之间的关系为 |EV|≤|∆CS|≤|CV| 这里我们使用绝对值表示三者的大小。

Computes exact EV and CV (and DWL) rather than approximation Use Shephard’s lemma and Roy’s identity to retrieve Hicksian demand and expenditure function. Steps: 1. Using Roy’s identity, we can retrieve the indirect utility function (solve differential equation in v(w,p)) 2. Invert the indirect utility to get the expenditure function: v ...

Comparison of CS, EV CV • Empirically, we are able to estimate CS, but not EV or CV. • How close an approximation is CS to EV or CV? – Depends on magnitude of the income effect – Differences are small for small price changes – Differences are small if (Marshallian) demand curve is inelastic

Download scientific diagram | Price increase: Compensating variation (CV), Equivalent variation (EV) and Consumer surplus. from publication: Economic Principles and Overview of Valuation...

In economics, compensating variation (CV) is a measure of utility change introduced by John Hicks (1939). 'Compensating variation' refers to the amount of additional money an agent would need to reach their initial utility after a change in prices, a change in product quality, or the introduction of new products.

It also turns out that for quasi-linear preferences the CV and EV are always equal to the change in consumers’ surplus. The intuition for this is not difficult: because the indifference curves are parallel (which means that the MRS at a particular quantity of x is the same on every indifference curve) then the distance on the y axis

Consider a consumer with the utility function U = xy, who faces a budget constraint of B = PxxPyy, where all variables are defined as before. where xM and yM are the consumer’s Marshallian demand functions. Substitut-ing xM and yM into the utility function yields the indirect utility function. x = 2, Py = 1 and B = 40.

二、 CV、EV和ΔCS三者之间的关系：拟线性 效用函数的情况 • 结论： 在拟线性效用函数情况下有CV=EV， 进一步，必有 CV = ∆CS = EV。 1、定义一: 利用图示 • 补偿变化CV： Key: 价格变化以后，要使消费者的境况和 以前一样，需要补偿多少货币？ 即： 以新的价格，回到原有的无差异曲线。 • 等价变化EV： Key: 价格变化以前，需要对消费者已有的货币 量进行多少调整（即补偿），才能使消费者 达到价格变化以后的境况？ 即： 以原有的价格，达到新的无差异曲线。 • …