Spurious Deadweight Gains
AbstractJuly 2000 Marshallian consumer surplus (MCS) is generally an inaccurate measure of welfare change because it neglects income effects. Suppose these effects overturn the usual demand response to a price change. Then, the deadweight loss from a distortionary tax or subsidy has the wrong sign, that is, there is a spurious deadweight gain. JEL Classification: D11, D6. Keywords: Marshallian consumer surplus, Giffen goods, Stability of equilibrium
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Bibliographic InfoPaper provided by Stanford University, Department of Economics in its series Working Papers with number 00014.
Date of creation: Jul 2000
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Marshallian consumer surplus; Giffen goods; Stability of equilibrium;
Other versions of this item:
- D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
- D6 - Microeconomics - - Welfare Economics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2000-10-11 (All new papers)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Willig, Robert D, 1976. "Consumer's Surplus without Apology," American Economic Review, American Economic Association, vol. 66(4), pages 589-97, September.
- Hausman, Jerry A, 1981. "Exact Consumer's Surplus and Deadweight Loss," American Economic Review, American Economic Association, vol. 71(4), pages 662-76, September.
- Robledo, Julio R. & Wagener, Andreas, 2007. "No spurious welfare gains from taxation: A further argument for the equivalent variation," Economics Letters, Elsevier, vol. 96(3), pages 325-330, September.
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