6.3 A migrant farm worker consumes only two goods, coffee

(c) and buttered toast (bt) that he obtains from the local take-away. Buttered toast is a composite commodity con sisting of a single slice of toast and two grams of butter.

● Focusing only on the substitution effects from price changes eliminates this ambiguity because substitution effects are symmetric; that is, �x c

i/�pj = �x c

j/�pi. Now two goods are deined as net (or Hicksian) substitutes if

�x c

i/�pj > 0 and net complements if �x c

i/�pj < 0. Hicks’

‘second law of demand’ shows that net substitutes are more prevalent.

● If a group of goods has prices that always move in uni son, then expenditures on these goods can be treated as a ‘composite commodity’ whose ‘price’ is given by the size of the proportional change in the composite goods’

prices.