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difference between hicks and slutsky's substitution effects of a price change
Tags: Change, difference, Effects, Hicks, price, slutskys, Substitution
why is hicksian's demand curve flatter than slutsky's demand curve?
Report (0) (0) | 13 years, 3 month(s) ago
Hick son approach Slutsky approach Why is this difference? 1 Keeping same price, price ratio is same after price change of our good. Same price but new price ratio after price drops of our good. New AND DIFFERENT indifference curve in Slutsky effect, allowing the consumer to choose indifference curve of Hick son approach 2 Old income level Old income level Income level is kept constant. 3 Same satisfaction level New satisfaction level i.e. its previous satisfaction level will change Difference curve for all equilibriums in three lines are unique in Slutsky approach while in hick son approach E1 and E2 has same indifference curve.
In nutshell, Slutsky solution is based upon Pasches index (change in real income)
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