Slutsky and Hicks Decompositions - Ordinary and Inferior Good

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To change the price of good X from its initial value pxA, slide the blue px-button in the yellow field. You can restore the applet by clicking on the symbol in the upper right corner.

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Made by Dr. Jens Peter Siebel with GeoGebra.

The utility function here is a slight modification of a function by Wold and Juréen (1953). As good X is inferior, the income effect pulls in the direction opposite to the substitution effect. However, in the case here, good X is ordinary, because the substitution effect overcompensates the income effect.

Wold H. and Juréen L. 1953. Demand Analysis: A Study in Econometrics. New York: Wiley.

Last update: 04/05/2011