Solutions to 5.2 Compensated Consumer Welfare (Part Three) | Microeconomics: Theory and Applications

Step-By-Step Tutorial of the Exercises for Microeconomics: Theory and Applications with Calculus 5th Edition
Chapter 5: Consumer Welfare and Policy Analysis
5.2 Compensated Consumer Welfare (Part Three)

00:00 Exercise 2.6
03:30 Exercise 2.7
08:49 Exercise 2.8
12:53 Exercise 2.9

Do not confuse the case in Exercise 2.7 with Exercise 2.4, where there is no income effect of a price change. In that exercise, the three measures of consumer welfare are identical. In this exercise, when there is no substitution effect of the price increase, the three measures of consumer welfare are not the same. The perfect complements must be normal goods, so the size of the compensating variation is larger than the change in consumer surplus, which is larger than the size of the equivalent variation. When there is no substitution effect of a price change, the uncompensated Marshallian demand curve slows downward, but the compensated Hicksian demand curves are vertical lines. The compensated demand is completely insensitive to a price change.

We have learned how to compute the compensating variation (CV) and the equivalent variation (EV) for the quasilinear utility function, the Cobb-Douglas utility function, the perfect complements, and the perfect substitutes in the past three videos.

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[liuyang-qxwm]

Hi Professor, I would like to ask if there will be an update after that about post-course answers to classic intermediate macroeconomics textbooks, similar to Blanchard's level.