A Note on Consumer Surplus with Quality Variation (Classic Reprint)

Excerpt from A Note on Consumer Surplus With Quality Variation<br/><br/>In this paper we extend the consumer surplus1 concept, to compare equilibria characterized by both price and quality changes. There are numerous situations where it is possible to provide a high quality-high price service or a lower price-low quality service; the problem that arises is evaluating the welfare loss or gain in moving from one equilibrium to another. Examples of such situations are, for instance, those faced by public utilities (determining the quality of service, in this case the probability of power failure); the decision to set quality standards by telephone companies (the probability of a call going through); the service provided by a computer center (the probability of achieving a certain turnaround time), highway design (the probability of getting from point A to point B in a certain time) and the water board (the purity of the water supplied).