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To the right we show the substitution effect alone. As always when we compensate the consumer according to expenditure she is slightly overcompensated in that on the compensated budget she receives a higher level of utility than she did originally.
The substitution effect alone induces our consumer to consume fewer potatoes when the price rises. Once we have compensated her for the fact that the price increase made her worse off, she substitutes away from potatoes and buys fewer of them, even though the are a Giffen good.
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