ABSTRACT
Following the concept of applied welfare economics, the maximum willingness to pay may be used as a welfare indicator for the consumer. Willingness to pay is defined as the maximum amount a consumer is prepared to pay for a good or service. It is therefore a monetary measure of the satisfaction of consuming a good. In Figure 2.1 willingness to pay, aggregated for all consumers, is illustrated by the area under the demand curve up to the quantity demanded qd ( p). We also call this the total benefit of consumption, defined as:
TB ( p) = q d (p)
0 p˜d (v) dv (2.1)
with TB – total benefit v – integration variable, here qd.
