Some Practical Issues in Economic Surplus Measurement in Multi-Market Models
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Despite continuing controversy, economic surplus has continued to be
used in empirical cost-benefit analyses as a measure of welfare to
producers and consumers. In this paper, the issue of measuring
changes in producer and consumer surplus resulting from exogenous
supply or demand shifts in multi-market models is examined using a
two-input and two-output equilibrium displacement model. When
markets are related through both demand and supply, significant
errors are possible when using conventional economic surplus areas
incorrectly as is evident in some applications in the literature.