The consumer's index

Abstract

Consumer’s surplus measures the area under the demand curve between two prices, but is path dependent. There exists a path such that consumer’s surplus tracks utility and an explicit formula is known for CES utilities. This paper shows that the CES based formula holds for any homothetic utility and I call it the consumer’s index. The index modifies consumer’s surplus in two ways: the change in income is measured by its growth factor and the area under the demand curve is normalized by income.