Hicksian demand can be recovered with the Slutsky equation if Marshallian demand and this phenomenon are both known. As wages increase, this phenomenon will start to predominate, causing the backward-bending labor supply curve. This phenomenon can be visualized by plotting a
Hicksian demand can be recovered with the Slutsky equation if Marshallian demand and this phenomenon are both known. As wages increase, this phenomenon will start to predominate, causing the backward-bending labor supply curve. This phenomenon can be visualized by plotting a budget line parallel to the original on indifference curves. It is positive for (*) normal goods and negative for inferior ones. It is theoretically possible for this effect to predominate when a good's price drops, leading to less of that good being consumed. A Giffen good is a good where this is larger than the substitution effect. For 10 points, name this effect a change in a consumer's total real wealth has on behavior.
Hicksian demand can be recovered with the Slutsky equation if Marshallian demand and this phenomenon are both known.
{income effect} [or wealth effect until \"wealth\" is read]