This chapter, which is inspired by the analysis in Just et al. (1982), deals with the measurement of consumer surplus under multiple price changes. Section 1 considers the relationship between a change in utility and areas to the left of ordinary or Marshallian demand curves. In particular, it is shown that the sum of the changes in consumer surpluses in general depends on the order in which prices are changed. Conditions under which there is a unique or path-independent ordinary money measure are investigated in Section 2. Section 3 introduces two of the measures (the compensating and equivalent variations) suggested by Sir John R. Hicks. In order to appreciate the results, it is useful to illustrate them by means of a few straightforward examples. Section 4, which ends this chapter, introduces two simple preference functions which are used as a basis for deriving consumer surplus measures.

Money measures and areas under ordinary demand curves

Consider a household that derives satisfaction from consuming n different commodities. The household is assumed to act as if it maximizes a well-behaved utility function subject to its budget constraint. The indirect utility function of this household is written as V(p, y), where p is a vector of prices and y is income.