Income-compensated demand curve

This article is about a plot with unit price on the vertical axis, and a quantity (dependent upon the unit price) on the horizontal axis.
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Definition

An income-compensated demand curve is a variant of the demand curve for a good, service, or commodity where changes in price are accompanied by offsetting changes in income so as to control for the income effect. Income-compensated demand curves are typically used when we want to isolate the substitution effect and ignore the income effect.

There are multiple notions of income-compensated demand curve, based on how much offsetting income compensation occurs for a given change in unit price. Two of the most typical notions are:

• Hicks income-compensated demand curve
• Slutsky income-compensated demand curve