1.Consumers surplus Money metric utility function e(p, u)measure the welfare of consumer in economy changing Definition: equivalent variation (En) and compensating Variation (CV): see the fig. Let u=v(po,w),u'=v(p,w),el(p,u=elp,u)=w Ev(p,p, w)=e(po, u)-e(po,u)=e(, u)-w C(p,p,1)=e(p,l)-e(p,l)=1-e(p,l)1.Consumer’s surplus • Money metric utility function measure the welfare of consumer in economy changing. • Definition: equivalent variation (EV) and compensating Variation (CV): see the fig. Let e u ( , ) p 0 1 0 1 0 0 0 1 EV w e u e u e u w ( , , ) ( , ) ( , ) ( , ) p p p p p = − = − 0 1 1 1 1 0 1 0 CV w e u e u w e u ( , , ) ( , ) ( , ) ( , ) p p p p p = − = − 0 0 1 1 0 0 1 1 u v w u v w e u e u w = = = = ( , ), ( , ), ( , ) ( , ) p p p p