ECO 405 Lecture Notes - Lecture 6: Economic Surplus, Expenditure Function, Indifference Curve
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5. 8 showing compensating variation (a) indifference curve map. Integration shows that cv can also be represented by the shaded area below the compensated demand curve in panel (b). (b) compensated demand curve x to p1 x to p1. If the price of x from p0 x, this person needs extra expenditures of cv to remain on the u0 indifference curve. Integration shows that cv can also be represented by the shaded area below the compensated demand curve in panel (b). 0 to px: this integral is the area to the left of the compensated demand curve between px. 0 x y x p x: consumer surplus c x p p u dp x y. Using consumer surplus to measure value of market. Figure 6. 6: consumer surplus: cs = highest price willing to pay actual price paid, since different individuals place different values on goods, individuals receive.
