The consumer's index

Thijs ten Raa

International Journal of Economic Theory, 2020, vol. 16, issue 1, 119-122

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.

Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:bla:ijethy:v:16:y:2020:i:1:p:119-122

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