Slutsky Equation.pptVIP

Slutsky Equation We want a way to decompose the effect of a price change into “simpler” pieces. that’s what analysis is all about break up into simple pieces to determine behavior of whole Break up price change into a pivot and a shift these are hypothetical changes we can examine each change in isolation and look at sum of two changes Slutsky Decomposition Change in demand due to pivot is the substitution effect this measures how demand changes when we change prices, keeping purchasing power fixed how much would a person demand if he had just enough money to consume the original bundle? this