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Slutsky Equation

Slutsky Equation. The Slutsky Equation. These effects are often summarized in the Slutsky equation. The Slutsky Equation. The Slutsky Equation. The substitution effect is the change in demand from a movement along the indifference curve. The Slutsky Equation.

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Slutsky Equation

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  1. Slutsky Equation Lectures in Microeconomics-Charles W. Upton

  2. The Slutsky Equation These effects are often summarized in the Slutsky equation SLutsky Equation

  3. The Slutsky Equation SLutsky Equation

  4. The Slutsky Equation The substitution effect is the change in demand from a movement along the indifference curve. SLutsky Equation

  5. The Slutsky Equation The income effect is the change in demand from the effective increase in income SLutsky Equation

  6. A Caution • The version of the Slutsky equation we use is only an approximation. SLutsky Equation

  7. A Caution • The version of the Slutsky equation we use is only an approximation. • We are assuming discrete changes in price and income; the correct equation assumes infinitesimal changes. SLutsky Equation

  8. Why spend time on this topic? • Giffin Goods SLutsky Equation

  9. Why spend time on this topic? • Giffin Goods • The Demand for Leisure SLutsky Equation

  10. Why spend time on this topic? • Giffin Goods • The Demand for Leisure • As wage rates increase, the cost of an hour of leisure increases • Demand goes up because the income effect dominates the substitution effect. SLutsky Equation

  11. Why spend time on this topic? • Giffin Goods • The Demand for Leisure • Different Slopes . SLutsky Equation

  12. Why spend time on this topic? • Giffin Goods • The Demand for Leisure • Different Slopes • Changes in the price of one brand versus changes in the prices of all brands. . SLutsky Equation

  13. Why spend time on this topic? • Giffin Goods • The Demand for Leisure • Different Slopes • Changes in the price of one brand versus changes in the prices of all brands. • Heavily purchased goods versus lightly purchased goods. SLutsky Equation

  14. Restating The Slutsky Equation SLutsky Equation

  15. The Marshallian Demand Curve SLutsky Equation

  16. The Marshallian Demand Curve SLutsky Equation

  17. The Hicksian Demand Curve SLutsky Equation

  18. The Hicksian Demand Curve SLutsky Equation

  19. Sir John Hicks SLutsky Equation

  20. Sir John Hicks The Hicksian Demand Curve is the right one to use for consumer surplus calculations, but we generally use the Marshallian one SLutsky Equation

  21. Sir John Hicks The Hicksian Demand Curve is the right one to use for consumer surplus calculations, but we generally use the Marshallian one Why? The difference is usually small SLutsky Equation

  22. A Demonstration SLutsky Equation

  23. Multiplying Through SLutsky Equation

  24. The Two Elasticities SLutsky Equation

  25. The Elasticity Relationship SLutsky Equation

  26. More Manipulation SLutsky Equation

  27. The Missing Terms SLutsky Equation

  28. The Final Relation SLutsky Equation

  29. The Final Relation Unless ω is pretty large, the difference is small SLutsky Equation

  30. The Final Relation Housing Leisure Unless ω is pretty large, the difference is small SLutsky Equation

  31. End ©2006 Charles W. Upton SLutsky Equation

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