Income and Substitution Effects

Topic: Introduction to Microeconomics — Cobb-Douglas utility U(x,y) = x^0.5·y^0.5, income M = 120, p_y = 10. Slutsky decomposition as p_x changes from 10.

Price of x: p_x = 10

Price of x (p_x)

10.0

Total effect on x

0.00

Substitution effect

0.00

Income effect

0.00

At the initial price p_x = 10, the consumer chooses x = 6, y = 6 and reaches utility U = 6. Move the slider to change p_x and see the Slutsky decomposition.