Economics : Consumer theory 1
In this discussion we will be looking at the Substitution effect (SE) and Income effect (IE) and consequently, the compensating variation (CV) and equivalent variation (EV). We will also explore the decomposition of the Marshallian (uncompensated) demand curve by both the Hicksian and Slutsky model.
We will be assuming normal goods X and Y, a cobb-douglas utility function for diminishing returns and a shock of a price hike.
