After we compensate her for the price increase it is not reasonable for her to purchase more potatoes. The shaded area to the right indicates all those consumption bundles that lie below her original indifference curve and so make her worse off.

   If PS were greater than PO, meaning that the substitution effect worked in the "wrong" direction she would be making herself worse off, something she wouldn't do. So, even for Giffen goods the substitution effect must be negative.

Copyright © 1995-2004, Inc. - All Rights Reserved