The Slutsky Decomposition

Pivot, then shift

Reading the two effects

The equation

Endowments extend the ledger

With m 100, prices 1 and 1, optimum (50, 50), p1 rises to 2. What pivot income keeps the old bundle exactly affordable?

Why is the substitution effect on own price always negative?

In the worked example the move B to C takes x1 from 37.5 to 25. What is this and what sign?

In the Slutsky equation, when exactly does a Giffen response occur?

In the worked example, compute the substitution effect as the change in x1 from A to B, and write the number with its sign.

Same example, compute the total effect on x1 from A to C, and write the number with its sign.

With m of 100, prices 1 and 1, then p1 rises to 2, the pivot income is 150. Where is the compensated bundle B?

The move from B of (37.5, 75) to C of (25, 50) is which piece of the decomposition?

For the worked example, the Slutsky pieces are SE of minus 12.5 and an income term. What does the full equation give for the total response to the price rise?

How does the Slutsky equation change for a consumer who starts with an endowment of the good rather than fixed income?

In the worked example, compute x1 at the compensated bundle B under prices 2 and 1 with income 150, and write the number as a decimal.

In the same example at C, income 100 and prices 2 and 1, compute x2 at the final optimum, and write the number.