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10. Consumer Surplus > Extentions of Hicksian Approach to Consumer Surplus

EXTENTIONS OF HICKSIAN APPROACH TO CONSUMER SURPLUS

Hicks' Four Concepts of Consumer Surplus

Hicks has pointed out, in his book Value and Capital, that Marshallian consumer's surplus was the same as his income-compensating variation. It was, however, shown by Henderson11 that Hicks’ income-compensating variation is not the same as the Marshallian consumer's surplus. In the Marshallian measure of consumer's surplus, the quantity purchased remains the same, whereas in the Hicksian measure, the quantity purchased varies in accordance with the consumer's choice. In other words, there is commodity constraint in the Marshallian measure of consumer's surplus, whereas there is no such constraint in the Hicksian income-compensating variation. This difference is shown in Figure 10.4. Marshallian measure of consumer's surplus is shown by BT, while the Hicksian measure of consumer surplus under income-compensating variation is BD = MM' which is greater than BT, for given quantity OQ. Besides, if the consumer shifts to point E, there will be commodity variation also.


  

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