The Hicksian decomposition of a price increase into the income and substitution effects for normal goods is done by (A) notionally removing income so as to keep the consumer on the original indifference curve (B) adjusting income so as to allow the consumer to purchase the same basket of goods as before the price changes (C) notionally adding income so as to keep the consumer on the original indifference curve (D) allowing the consumer to purchase more of both commodities than before the price changes.

UoH 2012 Question 1: Demand theory and elasticity

The Hicksian decomposition of a price increase into the income and substitution effects for normal goods is done by

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Demand theory and elasticity has come up 161 times in 7 exams since 2004.

This question is on Income and substitution effects: the Slutsky equation, part of Demand theory and elasticity in Microeconomics.

Splitting a price change into a substitution effect and an income effect, and why Giffen goods break the law of demand.

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