<p>You are perfectly right. The analysis in Varian's <em>Intermediate Microeconomics</em> is incomplete. If the consumed good doesn't switch, then the entire effect is a pure income effect. This has also been noted <a href="https://libjournals.mtsu.edu/index.php/jfee/article/download/1496/1075" rel="nofollow noreferrer">in the literature</a>.</p>

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2023-05-15T08:16:12.870Z
2023-05-15T08:16:12.870Z
VARulle
<p>Consider a simple utility function U(x,y) = x+y such that P<sub>x</sub> &lt; P<sub>y</sub> (which means only x is being consumed at optimal point, a corner solution).</p>
<p>In this case, assume P<sub>x</sub> falls further. Now won't the consumption of x increase further, and won't that be due to income effect entirely?</p>
<p>In the book i am studying from(Hal Varian), the author assumes P<sub>y</sub> reduces so that consumption shifts entirely from x to y, and concludes that perfect substitutes have no income effect.</p>
<p>But clearly, doesn't it depend on which commodity's price decreases?</p>

<microeconomics><slutsky-equation><income-effect><perfect-substitutes>
Income effect in perfect substitutes if the already cheaper good becomes more cheaper?
Polario
# Income effect in perfect substitutes if the already cheaper good becomes more cheaper?

(Asked by: username_0 on 2023-05-14)

Consider a simple utility function U(x,y) = x+y such that Px < Py (which means only x is being consumed at optimal point, a corner solution).

In this case, assume Px falls further. Now won't the consumption of x increase further, and won't that be due to income effect entirely?

In the book i am studying from(Hal Varian), the author assumes Py reduces so that consumption shifts entirely from x to y, and concludes that perfect substitutes have no income effect.

But clearly, doesn't it depend on which commodity's price decreases?

**Tags:** microeconomics, slutsky-equation, income-effect, perfect-substitutes


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## 1 answers

### Answer by username_1 on 2023-05-15. Score: 0 | Accepted answer

You are perfectly right. The analysis in Varian's *Intermediate Microeconomics* is incomplete. If the consumed good doesn't switch, then the entire effect is a pure income effect. This has also been noted [in the literature](https://libjournals.mtsu.edu/index.php/jfee/article/download/1496/1075).


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