New 55% Off on All Courses - Enroll Now! Click Here

    Question

    Which of the following statements is true

    A Hicksian substitution effect is greater than Slutsky substitution effect Correct Answer Incorrect Answer
    B Slutsky substitution effect is greater than Hicksian substitution effect Correct Answer Incorrect Answer
    C Hicksian substitution effect is same and equal to Slutsky substitution effect Correct Answer Incorrect Answer
    D Hicksian substitution effect is the reverse of slusky substitution effect Correct Answer Incorrect Answer

    Solution

    The Slutsky substitution effect provides the consumer greater satisfaction by bringing him on a higher indifference curve, while the Hicksian substitution effect brings him back to the initial level of satisfaction on the original indifference curve. Hicks’ substitution effect is weak because it is based on the compensating variation in income.

    Practice Next