This chapter is a natural sequel to Chapter 3 in that it is essentially a comparison of the three different consumer surplus measures presented there. We begin in Section 1 with an analysis of the conditions under which the different consumer surplus measures coincide. As the measures in general impute different dollar gains to a unique utility change, the question naturally arises as to whether any of the measures rank commodity bundles correctly, i.e. in the same way as the consumer would. The ordinal/cardinal properties of money measures of utility change are also briefly discussed. Section 2 is devoted to the problem of aggregation over individuals, and the chapter ends with a presentation of different techniques for determining consumer surpluses in empirical situations.

A comparison of different money measures of utility change

Three different money measures of utility change were introduced in Chapter 3. Unfortunately, these measures need not coincide. This was demonstrated by means of two examples in the final section of the chapter. What is the relationship between these measures?

There is a simple case in which the three considered measures (CV, EV and the ordinary consumer surplus measure S) coincide. If the utility function is quasi-linear, then demand for n–1 goods are independent of the level of income, implying that all additional income is spent on the nth good.