Ch 8 Slutsky Equation Flashcards
1
Q
Substitution effect
A
Change in demand due to the change in the rate of exchange (relative prices) between the two goods
2
Q
Income effect
A
Change in demand due to change in purchasing power
3
Q
Slutsky identity
A
Total change in demand equals the substitution effect plus the income effect
4
Q
Law of Demand
A
If the demand for a good increases when income increases, then the demand for that good must decrease when its price increases
5
Q
Slutsky substitution effect
A
Change in demand when prices change but a consumer’s purchasing power is held constant
6
Q
Hicks substitution effect
A
The budget line is pivoted around the indifference curve instead of the original choice
Utility is kept constant rather than purchasing power
7
Q
Hicksian demand curve
A
Demand curve with utility held constant
