How Do You Spell EQUIVALENT VARIATION?

Pronunciation: [ɪkwˈɪvələnt vˌe͡əɹɪˈe͡ɪʃən] (IPA)

The term "equivalent variation" refers to a measure of economic welfare that calculates the amount of income a person would need given a change in prices in order to achieve the same level of satisfaction as before. The spelling of the word "equivalent" is pronounced as /ɪˈkwɪvələnt/ with stress on the second syllable and is spelled as it sounds. The word "variation" is pronounced as /vɛːrɪˈeɪʃ(ə)n/ with stress on the second syllable and is spelled with a "t" instead of a "s" in its final syllable, which can be trickier to remember.

Meaning and Definition
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EQUIVALENT VARIATION Meaning and Definition

  1. Equivalent variation refers to the economic concept that measures the welfare change experienced by consumers due to a change in prices or income. Specifically, it quantifies the change in utility or satisfaction that a consumer would require to be indifferent between two different market situations.

    In practical terms, equivalent variation captures the amount of compensation or adjustment needed to restore a consumer's well-being after a change in prices or income. It takes into account the effect of these changes on the consumer's ability to purchase goods and services. For example, if the price of a good increases, the consumer may need additional income to maintain the same level of satisfaction as before the price increase.

    Equivalent variation is often computed by comparing the hypothetical situation after the price or income change with the initial situation. It accounts for both substitution effects (changes in the quantity demanded due to relative price changes) and income effects (changes in quantity demanded due to changes in purchasing power). By quantifying the resulting change in consumer welfare, equivalent variation provides a meaningful way to evaluate different economic scenarios and policies.

    Overall, equivalent variation serves as a measure to assess the impact of changes in prices or income on consumer welfare and helps economists and policymakers in analyzing the desirability and implications of economic modifications.

Etymology of EQUIVALENT VARIATION

The term "equivalent variation" is commonly used in economics and refers to the change in a consumer's utility resulting from a variation in prices or income. While the etymology of the specific phrase "equivalent variation" is difficult to trace, the word "equivalent" comes from the Latin word "aequivalentem", which means "equivalent" or "equal". The word "variation" has a similar Latin origin, deriving from "variatio", which means "change" or "alternation". In the context of economics, the phrase "equivalent variation" might have been coined to describe a change in utility that is equal or equivalent to a particular variation in prices or income.