New method accurately measures welfare changes from price and income shifts.
The article presents a new method to measure changes in welfare due to price and income shifts. By using a Taylor series expansion of the expenditure function, the researchers approximate compensating and equivalent variations without needing to make assumptions about marginal utility of income. This approach is compared to another method called McKenzie's metric and found to be more accurate in numerical examples. The findings show that the proposed method can accurately estimate welfare changes when prices and income change at the same time.