The consumer's index

Research output: Contribution to journalArticleAcademicpeer-review

Abstract

Consumer’s surplus measures the area under the demand curve between two prices, but is path dependent. There exists a path such that consumer’s surplus tracks utility and an explicit formula is known for CES utilities. This paper shows that the CES based formula holds for any homothetic utility and I call it the consumer’s index. The index modifies consumer’s surplus in two ways: the change in income is measured by its growth factor and the area under the demand curve is normalized by income.
Original languageEnglish
Pages (from-to)119-122
Number of pages4
JournalInternational Journal of Economic Theory
Volume9
Issue number29
DOIs
Publication statusPublished - 2020

Keywords

  • consumer’s surplus
  • price–income indices
  • purchasing power

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