Discussion
Which of the following term is more important in welfare economics and in designing government policy ?
Answer: B
The more important term is Consumer surplus.
Consumer surplus, the difference between what consumers are willing to pay and what they actually pay, measures the benefit consumers get from a market. Because it can be measured in money terms, it is used in cost-benefit analysis and to judge the welfare effects of taxes, subsidies, tariffs and price controls, for example through deadweight loss.
Indifference curves, the equi-marginal principle and revealed preference are tools of consumer theory that explain choice, but they do not give the money measure of welfare gains and losses that policy analysis needs.
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