6.

1#1

y
I/py

This section of budget

set becomes unfeasible

-(px1/py)

-(px2/py)
I/px2

I/ px1

6.1#2

y
Income effect

Normal good

I/py

S
C2

C1

Substitution effect

U1
U2
I/px2

I/px1

6.1#3

I/py
Inferior good
S
C1

C2

I/px1

I/px2

6.1#4

y
I/py
Giffen good

S
C1

C2

I/px1

I/px2






6.1#5

y
I/py

Marshallian demand

U1
U2

U3
I/px3

I/px2

I/px1

6.1#6

y
Hicksian demand

U0

I/px3

I/px2

I/px1





px

6.1#7

Normal good

Income effect
dx/dI >0

dx

hx

Qx
6.1#8

px
Inferior good

Income effect
dx/dI < 0

hx

dx

Qx

6.1#9

Giffen good

px

dx

Income effect >>

Substitution effect

hx

Substitution effect

Qx

Income effect

MIT OpenCourseWare
http://ocw.mit.edu

14.03 / 14.003 Microeconomic Theory and Public Policy

Fall 2010

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