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Consumer's Surplus, Price Instability, and Consumer Welfare

Stephen J. Turnovsky, Haim Shalit and Andrew Schmitz
Econometrica
Vol. 48, No. 1 (Jan., 1980), pp. 135-152
Published by: The Econometric Society
DOI: 10.2307/1912022
Stable URL: http://www.jstor.org/stable/1912022
Page Count: 18
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Consumer's Surplus, Price Instability, and Consumer Welfare
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Abstract

This paper evaluates the benefits to consumers from price stabilization in terms of the convexity-concavity properties of the consumer's indirect utility function. It is shown that in the case where only a single commodity price is stabilized, the consumer's preference for price instability depends upon four parameters: the income elasticity of demand for the commodity, the price elasticity of demand, the share of the budget spent on the commodity, and the coefficient of relative risk aversion. All of these parameters enter in an intuitive way and the analysis includes the conventional consumer's surplus approach as a special case. The analysis is extended to consider the benefits of stabilizing an arbitrary number of commodity prices. Finally, some issues related to the choice of numeraire and certainty price in this context are discussed.

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