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Chapter 10 / Welfare Effects of a Price Change

10.1 Consumer Welfare


The presentation of any economic theory generally falls into several parts:

The welfare implications of the model posit the question: now that we know how economic agents will respond to changes, how good or bad is that for them? How much does a price increase hurt them, or conversely, how much would a price decrease help them?

This is an incredibly important aspect of economic analysis, especially because it factors in a lot of important policy decisions. Think of these two examples:

To answer these questions, we need to better understand the relationship between money and utility.

Next: The Relationship between Money and Utility: Indirect Utility and Expenditure Functions
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