Answer to Question #132037 in Finance for keshav singh

Question

Draw Slutskey's decomposition of price effect into substitution and income effect in case of normal good

Answer 1

If income is altered in response to the price change such that a new budget line is drawn passing through the old consumption bundle but with the slope determined by the new price and consumers optimal choice is on the budget line ,the resulting change on consumption is known as the slutskey substitution effect