Inconsistencies in Textbook Presentation of Substitution and Income Effects

Julien Picault

International Journal of Teaching and Education, 2016, vol. 4, issue 3, 7-15

Abstract: Labour economics textbooks present inconsistent methods for determining substitution and income effects. Hicks (1939) and Samuelson (1953) developed two different methods separating substitution and income effects. While both methods result in the same conclusion regarding the direction of the effects, they differ on magnitude of the effects. Furthermore, economics instructors are typically unaware of the inconsistency in labour economics textbooks, causing them to consider students? answers as incorrect when they may not be. This paper advocates for the selection of a standard approach in labour economics instruction, and acknowledges that these different methods are currently a source of confusion for students.

Keywords: Substitution effect; Income effect; Textbook; Cost-Difference; Compensating Variation (search for similar items in EconPapers)
JEL-codes: A20 (search for similar items in EconPapers)
Date: 2016
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