Total Effect x1x1p1p1Ix1p1I Substitution Effect xs. This paper argues that the negative elasticity of labor supply can be understood better with the help of the interpretation. 26 Slutskys Effects for Income-Inferior Goodsx 2x 1 x 2 x 2 x 1 x 1 x 1 x 2 The pure substitution effect is as for a normal good.
If price of good 1 decreases new optimal choice must involve consuming at least as much of good 1 as originally.
With respect to income multiplied by marshillian demand for good i. 1x1p1p1IIx1p1I Income Effect xI. 2 The Slusky Equation A very important relating the eect of a price change on uncompensated demands with the eect of a price change in compensated demands as well as an income change can be derived from the identity given in ID3a which states that for any given u and any corresponding level of income I Ep xp yu xc p xp yu xd p xp yEp xp. 26 Slutskys Effects for Income-Inferior Goodsx 2x 1 x 2 x 2 x 1 x 1 x 1 x 2 The pure substitution effect is as for a normal good.