The Substitution and the Revenue Effects for a Cobb-Douglas Utility Function

Abstract

In the consumer’s theory, a crucial problem is to determine the substitution effect and the revenue effect in the case of one good price’s modifing. There exists two theories due to John Richard Hicks and Eugen Slutsky which allocates differents shares of the total change of the consumption to these effects. The paper makes an analysis between the two effects, considering the general case of a Cobb-Douglas utility function and introduces three indicators which will characterize these shares.