Answer to Question #57213 in Other Economics for matt
what are the advantages and disadvantages of using the different welfare measures: change in consumer surplus, equivalent variation, and compensating variation?
There are different welfare measures: change in consumer surplus, equivalent variation, and compensating variation. Compensating variation measures the amount of extra income that the individual would need at the new price to compensate for the adverse effects of the price change. Equivalent variation measures the sum of money we would need to take away from the individual at the original price to reduce the individual's welfare by the same amount. The change in consumer surplus is between the equivalent and compensating variations.