If Hicksian demand function hi(p, ubar) > 0, then hi(p,ubar) is strictly decreasing in Pi.

Expert Solution

This statement is true.

The Hicksian demand for "good i "is decreasing in "pi".

When the p1 increases the relatuve prices will favoured to good 2. To attain target utility is less of good 1 and more of good2.when p1 rises the relative prices become tilted in favour of good 2.

Raise in p1 always reduces Hicksian demand for good i, for giffen goods it increase the Marshallian demand. Any change in hicksian demand isolates the substitution effect.

Rahul Sunny answered 2 years ago

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