Marshallian consumer surplus (MCS) is generally an inaccurate measure of welfare change because it neglects income effects. Suppose these effects overturn the usual demand response to a price change. Then, the deadweight loss from a distortionary tax or subsidy has the wrong sign, that is, there is a spurious deadweight gain
Spurious deadweight gains / G. Facchini, P.J. Hammond, H. Nakata. - In: ECONOMICS LETTERS. - ISSN 0165-1765. - 72:1(2001 Jul), pp. 33-37.
Spurious deadweight gains
G. FacchiniPrimo
;
2001
Abstract
Marshallian consumer surplus (MCS) is generally an inaccurate measure of welfare change because it neglects income effects. Suppose these effects overturn the usual demand response to a price change. Then, the deadweight loss from a distortionary tax or subsidy has the wrong sign, that is, there is a spurious deadweight gain
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