The Compensating Variation for an increase in the price of a good is
A)the minimum amount of money a consumer would accept to voluntarily accept the price increase.
B)the maximum amount of money a consumer would pay to avoid the price increase.
C)the change in consumer surplus resulting from a price increase.
D)the change in utility resulting from the increase in price.

Question

Quizplus · Accepted Answer

The compensating variation is the minimum amount of money a consumer would require to be compensated so that they would be indifferent between the two scenarios - before the price increase and after the price increase. In other words, it measures the amount of income that must be given to the consumer to make them equally as well off as they were before the price increase. Therefore, the correct option is A, which states that it is the minimum amount of money a consumer would accept to voluntarily accept the price increase.

The Compensating Variation for an Increase in the Price of a Good