Compensated Demand Curve

Derived by Hicksian.

Assume the price of Y doesn't change, price of X changes.

Consumer gets compensation to maintain the original utility level when facing rise in price of X. That is, budget line always be tangent with indifference curve, though its slop changes. (When price drops, money should be taken off from consumer, but the word "compensated" becomes confusing.)

In the upper graph, only substitution effect here, no income effect because compensation.

See also

Marshallian demand curve
Compensating variation
Income effect and substitution effect

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