We commend the organizers of this session and agree that general equilibrium (GE) welfare analysis is a topic of increasing interest. Recent research has indeed raised increasing concern about policy recommendations based on the piecemeal approach (see, for example, Lopez and Panagaria). Because we received Thurman's paper some time ago, the. usual opportunity simply to espouse our own views on the topic is not open. Nevertheless, we want to start by emphasizing that the Kaldor/Hicks compensation criterion is the foundation of applied welfare economics and that this principle is intimately related to willingness-to-pay welfare measures such as compensating variation. There is still a tendency in the profession, as reflected in some parts of Thurman's paper, to presume that the ultimate objective is measurement of consumers and producers surplus. Because Marshall was ambiguous about these terms, it is not surprising that treatments based directly on Marshallian concepts are less than clear. The Kaldor/Hicks compensation criterion defines as a potential Pareto improvement any case where the excess of the maximum amount gainers are willing to pay exceeds the minimum amount that the losers are willing to accept to build a project or to change a policy. No judgment is made regarding whether or not compensation should be paid. It is simply a potential compensation criterion. However, sufficient income must exist in the economy to pay compensation if the decision is made to do so, a point to which we will return later. As long as economic agents have well-defined property rights to the initial situation, the appropriate measure for both the gainers and the losers is the compensating measure associated with the change. These points are made because parts of the Thurman paper suggest that the appropriate measures of welfare for both the consumer and producer are consumers and producers surplus, respectively. In fact, the triangle-like Marshallian areas behind supply and demand have welfare significance only as they approximate true willingness-to-pay measures (Hicksian surplus for the consumer and quasi-rents for the producer). The conditions under which various measures coincide are well understood and presented in detail in Just, Hueth, and Schmitz (JHS). Failure to keep in mind that these are not identical concepts can lead to misinterpretation of the welfare significance of changes in producer and consumer surplus areas, particularly in a GE setting. For example, in equation (2) of Thurman, the first term on the right-hand side is interpreted as the change in consumer surplus, but no interpretation of the welfare meaning of this change is provided. The final term of this expression is shown correctly to measure the sum of changes in producer surplus for all input suppliers of the industry of focus. In the following equation, however, this term is converted to changes in profits or quasi-rents for these producers. In a GE context, the change in producer surplus is equal to the change in quasirents only when either the input suppliers are initial resource holders, and then only if the supplies are compensated, or where input suppliers purchase their inputs under conditions of perfectly elastic supply (Just and Hueth). Although Thurman emphasizes the possiblities for conducting welfare analysis for consumer and producer groups in a single market, he does not recognize the possibilities for doing distributional analysis in the same market. As shown by JHS (pp. 188-92) the market for x, in figure 3 can be used to separate the welfare impacts on the producers of commodity Q from the impacts on consumers of Q and input suppliers as long as x, is a necessary input. That is, the difference in areas behind the ordinary demand curves passing through the two points on the GE demand curve at w? and wi can be used to estimate the welfare impact on the producers of Q. Then, using the GE demand curve, which Darrell L. Hueth and Richard E. Just are a professor and chairman, and a professor, respectively, Department of Agricultural and Resource Economics, University of Maryland.