History and troubles of consumer surplus

Abstract

The paper is focused on history of the concept of consumer surplus presented by Alfred Marshall as an economic tool to measure benefits and losses resulting from changes in market conditions. As it assumes constant marginal utility of money, it was refused by further development of economics. Subsequently, John Hicks redefined the concept using indifference analysis, inducing the use of compensating and equivalent variations in welfare economics. However, we reveal substantial errors in the Kaldor-Hicks-efficiency justification of economic policy and suggest an alternative use for the concept of consumer surplus - in an analysis of economic discrimination.