The difference between the equivalent variation and compensating varia

The difference between the equivalent variation and compensating variation is greater for goods with large income elasticities.

Indicate whether the statement is true or false

ANSWER

True . According to the Slutsky equation, the difference between the compensated demand and uncompensated demand elasticity is given by the product of budget share and income elasticity. For larger income elasticities, the difference between these measures will also be larger.