What does equivalent variation mean?
Definitions for equivalent variation
equiv·a·lent vari·a·tion
This dictionary definitions page includes all the possible meanings, example usage and translations of the word equivalent variation.
Wiktionary
equivalent variationnoun
The measure of how much money a consumer would pay before a price increase, to avoid the price increase.
Wikipedia
Equivalent variation
Equivalent variation (EV) is a measure of economic welfare changes associated with changes in prices. John Hicks (1939) is attributed with introducing the concept of compensating and equivalent variation. The equivalent variation is the change in wealth, at current prices, that would have the same effect on consumer welfare as would the change in prices, with income unchanged. It is a useful tool when the present prices are the best place to make a comparison. The value of the equivalent variation is given in terms of the expenditure function ( e ( ⋅ , ⋅ ) {\displaystyle e(\cdot ,\cdot )} ) as E V = e ( p 0 , u 1 ) − e ( p 0 , u 0 ) {\displaystyle EV=e(p_{0},u_{1})-e(p_{0},u_{0})} = e ( p 0 , u 1 ) − w {\displaystyle =e(p_{0},u_{1})-w} where w {\displaystyle w} is the wealth level, p 0 {\displaystyle p_{0}} and p 1 {\displaystyle p_{1}} are the old and new prices respectively, and u 0 {\displaystyle u_{0}} and u 1 {\displaystyle u_{1}} are the old and new utility levels respectively. Furthermore, if the wealth level does not change, e ( p 0 , u 0 ) = w = e ( p 1 , u 1 ) {\displaystyle e(p_{0},u_{0})=w=e(p_{1},u_{1})} since under both old and new utility levels and prices, a consumer exhausts their Budget Constraint by Walras's law, so E V = e ( p 0 , u 1 ) − e ( p 1 , u 1 ) {\displaystyle EV=e(p_{0},u_{1})-e(p_{1},u_{1})} However, the last equality only holds in the case where the wealth level of a consumer does not change and is thus only a special (albeit very useful and widely used) case of the definition of Equivalent Variation. It fails to hold e.g. when we consider an endowment economy, in which the wealth level is not exogenously given by but endogenous to the price.
Wikidata
Equivalent variation
Equivalent variation is a measure of how much more money a consumer would pay before a price increase to avert the price increase. Because the meaning of "equivalent" may be unclear, it is also called extortionary variation. John Hicks is attributed with introducing the concept of compensating and equivalent variation. It is a useful tool when the present prices are the best place to make a comparison. The value of the equivalent variation is given in terms of the expenditure function as where is the wealth level, and are the old and new prices respectively, and and are the old and new utility levels respectively.
Numerology
Chaldean Numerology
The numerical value of equivalent variation in Chaldean Numerology is: 2
Pythagorean Numerology
The numerical value of equivalent variation in Pythagorean Numerology is: 1
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"equivalent variation." Definitions.net. STANDS4 LLC, 2024. Web. 16 Jun 2024. <https://www.definitions.net/definition/equivalent+variation>.
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