Question: In calculus notation, this decomposition can be represented as follows: This equation is known as the Slutsky equation. The first term to the right of

In calculus notation, this decomposition can be represented as follows:

XP dP dX| dP dX| - X- dPF

This equation is known as the Slutsky equation. The first term to the right of the equal sign is the substitution effect, where utility is held constant. The second term is the income effect, where prices are held constant, and X is the amount of the good consumed prior to the price change.

XP dP dX| dP dX| - X- dPF

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The Slutsky equation decomposes the total effect of a change in price on the consumption of a good into two separate effects the substitution effect a... View full answer

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