# Questions tagged [slutsky-equation]

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### Confusion regarding the Slutsky equation

I'm reading Henderson and Quandt's Microeconomic Theory textbook and in the derivation process of the slutsky equation the final formula confused me a bit. The first term on the right of the equation ...
98 views

### substitution effect in slutsky equation

We know Slutsky equation decomposes the price effect into substitution effect and income effect, where the substitution effect is the partial derivative of Hicksian demand function against the change ...
45 views

### Explaining the relative share of the income & substitution effects of a price change

Let's say you have a Cobb-Douglas utility function, U = x^.1*y^.9 This will result in Marshallian demand functions x* = .1I / Px, and y* = .9I / Py. If you perform a Slutsky decomposition for x* as Px ...
472 views

### Why does the Substitution effect always have to be negative?

I understand why the income effect can be positive or negative depending if the good is normal or inferior. but why does the substitution effect always have to be non-positive?
155 views

### A question on Intermediate Microeconomics 9ed by Hal Varian, Chapter 8 Slutsky Equation, Figure 8.8

In the example on Voluntary Real Time Pricing in "Chapter 8 Slutsky Equation", anyone can help to explain why the mentioned pricing scheme is a "Slutsky pivot"? In the textbook, it ...
81 views

### Does an "optimal" MRS exist?

I was reading a case study in Hal Varian, where the author talks about essentially a surge pricing mechanism for incentivizing households to consume less electricity during peak hours (so as to not ...
1 vote
129 views

### Income effect in perfect substitutes if the already cheaper good becomes more cheaper?

Consider a simple utility function U(x,y) = x+y such that Px < Py (which means only x is being consumed at optimal point, a corner solution). In this case, assume Px falls further. Now won't the ...
101 views

### CES in Slutsky matrix (weird results)

We have a Slutsky matrix: \begin{bmatrix} \partial x_{1}^H/\partial P_1 & \partial x_{1}^H/\partial P_2 & \dots & \partial x_{1}^H/\partial P_n \\ \partial x_{2}^H/\partial P_1 &...
1 vote
199 views

### Using Slutsky method to understand substitution and income effect for luxury goods

If both goods are luxury goods, such as Channel vs Dior bags, how can you graph the substitution and income effect using the Slutsky method when the price of Channel bags fall? What I've tried: ...
255 views

### Concave preferences have negative SE [Proof]

Question from Intermediate Microeconomics by Hal Varian: Suppose that preferences are concave. Is it still the case that the substitution effect is negative? This is my point: If preferences are ...
1 vote
4k views

### Is the Hicksian demand curve steeper or flatter than Slutsky demand?

Putting price on the vertical axis and quantity on the horizontal axis, is the Slutsky demand steeper or flatter than the Hicksian demand curve? If I calculate the Slutsky and Hicksian substitution ...
131 views

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### Uncompensated and compensated demand functions

I came across this lecture note online and some of the points below confuse me. I have added the part that confuses me as an image and here is the lecture note for further reference, if needed. ...
462 views

### is income effect in the given quasilinear function equal to 0?

utility function given to me is as follows, $$u(x,y) = x+4 \sqrt{y}$$ which is a simple quasilinear function. There is a change in the given price vector, $(p_x,p_y) = (1,1) \to (0.25,1)$, and the ...
1 vote
111 views

### budget line for ration quota

In this situation there is a particular commodity, like rice, is both available at a subsidized rate from a fair price shop (ration shop) and at a higher price from the open market. Suppose a consumer ...