The difference between the equivalent variation and compensating variation is greater for goods with large income elasticities.

Question

Quizplus · Accepted Answer

According to the Slutsky equation,the difference between the compensated demand and uncompensated demand elasticity is given by the product of budget share and income elasticity.For larger income elasticities,the difference between these measures will also be larger.

The Difference Between the Equivalent Variation and Compensating Variation Is