Hicks Refinement

II.s already mentioned. Hicks has defined consumer’s surplus as the difference between marginal valuation of a unit and the price which is actually paid for it. The difficulty in the concept of consumer’s surplus centers round the calculation of this marginal valuation. The assumption of constant marginal utility of money enabled Marshall to ignore the differences between various marginal valuations. Tiling makes Marshall’s definition inadequate.

Hicks has distinguished between various species of consumer’s surplus . .1 One type of consumer’s surplus is the Increment of Consumer’s Surplus, It results when consumption of the commodity is increased consequent on a fall in price, income remaining unchanged,This increment is divided into two parts: (a) increment of surplus on units consumed previously and (b) new surplus from increase in consumption. The first is equal to the cost difference. Here there is a change in what the consumer does pay but no change in what he is prepared to pay. The second part arises from the difference between the marginal valuation of the extra units and the price which is paid for them.

Difficulties of Measurement

We have explained above that the consumer’s Surplus is simply the difference between what we are prepared to pay rather than go without and what we actually pay. Or it can be ascertained by the following formula.

Consumer’s Surplus = Total Utility – Price x Number of units purchased (i.e., the total amount spent).

How simple it looks.

me measurement of consumer’s surplus, however, is not so simple as that. There are numerous difficulties which stand in the way of the precise measurement of consumer’s surplus.

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