Substitution effect The Slutsky equation decomposes a change in consumption caused by a price change (income...

Substitution effect

The Slutsky equation decomposes a change in consumption caused by a price change (income effect and substitution effect). Find the substitution effect of a price change in the following cases:

ε^U= -0.7, ε_y =1.4 and budget share (b) = 0.2

ε^U= -0.9, ε_y = 0.8 and U = x₁^0.5x₂^0.5

Expert Solution

Rahul Sunny answered 2 years ago

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