Consumer's Surplus, Price Instability, and Consumer Welfare

Stephen J. Turnovsky, Haim Shalit, Andrew Schmitz

Research output: Contribution to journalArticlepeer-review


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.
Original languageEnglish
Pages (from-to)135-152
Number of pages18
Issue number1
StatePublished - 1980


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