The amount of compensation associated with the income effect of a price change is called:
A) a compensation variation.
B) an income effect.
C) consumer surplus.
D) a subsidy.

Question

Quizplus · Accepted Answer

The compensation variation refers to the amount of change in income that would compensate for the income effect of a price change, resulting in the same level of utility or satisfaction before and after the price change. It is one of the measures of welfare impact used in welfare economics. Therefore, option A is the correct answer. Option B refers to the overall change in consumption due to a change in income, while option C refers to the difference between consumers' willingness to pay for a good or service and the price they actually pay. Option D refers to a payment made by the government to support a specific economic activity or industry.

The Amount of Compensation Associated with the Income Effect of a Price