Consumer's Surplus Without Apology: Reply
Abstract
I began my article Consumer's Surplus Without Apology (henceforth, CSWA) with the words The purpose of this paper is to settle the controversy surrounding consumer's surplus... (p. 589). That is my purpose here, as well. However, George McKenzie's published comments have taught me that if articles and careful analyses settle controversies, they only do so very slowly. McKenzie makes sweeping and attacking statements about CSWA but fails to substantiate them. He scatters birdshot criticisms at CSWA that are based on misreadings of rather clear material. He offers an example in which he miscalculates multiproduct consumer's surplus. Finally, he contends that his own (with Ivor F. Pearce) approach to welfare analysis is preferable to the consumer's surplus approach. In this reply, to keep the record straight, I show in Section I that each of McKenzie's strongly worded attacks is unsubstantiated and invalid, and that each of his more technical sounding criticisms rests only on misreadings of CSWA. More interestingly, in Section II, I summarize some of the theory of multiproduct consumer's surplus that is needed to understand the calculatiop error in and proper interpretation of the example that McKenzie proffers. In Section III, I argue that the approach to welfare analysis advocated by McKenzie and Pearce is far less useful than the consumer's surplus methodology.
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