equivalent variation

Definitions

Economics

  • noun the amount of extra money needed to give a customer the same utility as if the price of the good or service were to fall. The opposite, compensating variation, is the extra money needed to give the customer the same utility as if the price were to rise.

Health Economics

  • (written as Equivalent Variation)
    The equivalent variation in income is the maximum amount of money an individual would be willing to pay before a price increase to leave them as well off as they would be after the change. Similarly, in the case of a price fall, it is the minimum amount of money a person would have to receive to be as well off as they would be after the change. It is a measure of welfare change introduced by Sir John Hicks (1904-89) and its main use lies in cost-benefit analysis and related techniques for estimating the benefits of public investments.
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