Fig 3.1 · LO2 & LO3

Two-Panel Demand Derivation

Every price of X pins down one optimal bundle on the left. Now let's change the price of X and see what changes. As we lower the price step by step, the budget line pivots outward, the consumer finds a new indifference curve, and a new optimal point emerges. That bundle's X-coordinate is then plotted on the right, building the demand curve one point at a time.

Fig 3.1 ▸ Two-Panel Demand Derivation ▾
Playback speed:
Utility Maximization
Demand Curve
Speed: Step 0 / 4
Fig 3.2 · LO6

Slutsky Decomposition Explorer

Any price change can be split into a substitution effect (SE) - moving along the original IC at new prices - and an income effect (IE) - shifting between ICs due to changed real income. Use the slider to vary the new price and watch the decomposition update live.

Fig 3.2 ▸ Slutsky Decomposition Explorer ▾
Fixed original: PX = $3  ·  I = $60  ·  PY = $3
Three budget lines · Two ICs
Slutsky Scoreboard
Bundle A (original)–
Bundle C (compensated)–
Bundle B (new)–
SE = XC – XA –
IE = XB – XC –
Total Effect –
Good type –
Remember: The compensated budget line has the new slope (–PX,new/PY) but provides just enough income to maintain the original utility UA. Point C is its tangency with the original IC. SE is always negative for own-price increases.
Fig 3.3 · LO4 & LO5

Income Effects & Demand Shifts

A change in income shifts the entire demand curve. Toggle between a normal good (rising income shifts demand rightward) and an inferior good (rising income shifts demand leftward), and watch the income expansion path trace out.

Fig 3.3 ▸ Income Effects & Demand Shifts ▾
Good type:
Fixed: PX = $2  ·  PY = $3
IC / Budget Constraint + Expansion Path
Demand Curve Shift (at PX = $2)
X* (optimal)
–
Y* (optimal)
–
∂X*/∂I (sign)
–
Demand shift direction
–
Fig 3.4 · LO2, LO3 & LO4

Shift vs. Movement Drill

The demand curve for X plots PX on the vertical axis and QX on the horizontal axis - everything else is held fixed. So a change in PX itself simply slides the consumer along the existing curve (a movement). Any other change - income, the price of another good, tastes, number of buyers - alters how much X is demanded at every price, which shifts the entire curve. The diagram animates whichever effect applies when you answer each scenario.

Fig 3.4 ▸ Shift vs. Movement Drill ▾
Fig 3.5 · LO1 & LO4

Cross-Price & Demand Function Explorer

Two types of price effects show up on a demand diagram - and they look completely different. Moving the own price (PX) traces a path along the existing demand curve: quantity adjusts, but the curve itself stays put. Changing the cross price (PY, the price of another good) shifts the entire curve - at every possible PX, demand for X is now higher or lower than before.

Why the difference? The demand curve for X already embeds a fixed PY. When PY changes, that embedded assumption breaks - you need a whole new curve. The direction of the shift reveals the relationship: if X and Y are substitutes (think Pepsi vs Coke), a higher PY makes X look relatively cheaper and shifts demand for X rightward. If they are complements (think coffee and milk), a higher PY makes the combination more expensive and shifts demand for X leftward.

Try this: set the relationship to Substitutes, then hold PX fixed and raise PY. Watch the demand curve shift right - meaning at the same PX, consumers now want more X because Y just got more expensive. Then switch to Complements and repeat: the shift reverses.

Fig 3.5 ▸ Cross-Price & Demand Function Explorer ▾
Relationship:
Live Demand Function
X* =
–
Y* =
–
PX·X* (expenditure)
–
Curve effect of PY
–
Demand Curve for X (own price effect)
Key distinction: Moving the PX slider causes a movement along the demand curve (the current point slides). Moving PY or I shifts the entire curve.