Here Are Three Possible Definitions of "Compensating Variation

question 10

Multiple Choice

Here are three possible definitions of "Compensating Variation":
I.the amount a person would be willing to pay to avoid a price increase.
II.the amount of additional income needed to allow a person to restore his or her utility back to its initial level after it has been reduced by a price increase.
III.the amount of income that a person who experienced a price increase would be willing to pay to see the price return to its earlier level.
Which of these definitions is (are) correct?

• A)​Only I
• B)​I and II
• C)​II and III
• D)​Only III

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Definitions:

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