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Question from Past Microeconomics Qualifying ExamEdit

Fall 2005 - Section I, Question ten, George Mason University

T, F, U. State first whether the following statements are true, false or uncertain. Then briefly explain your reasoning in four or five sentences. You may use a graph if it helps clarify your answer.

When price falls, the Slutsky and Hicks compensated demand curves always have a larger quantity effect than the ordinary uncompensated curves.

AnswerEdit

False, Because the Slutsky and the Hicksian Demand curves are both removing a portion of the income effect, they are have less change in quantity than the ordinary (Marshallian) demand curve.

In terms of income effect: Marshallian has the most; Slutsky far less (but still some); and Finally the Hicksian is a theoretical treatment which has no income effect in the demand curve.

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