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Unformatted text preview: There are two ways to measure the substitution effect (SE) of a price change: Hicks SE or Slutsky SE. I will focus in class on the Hicks effect. Chapter 8 in your book mentions both, but focuses on the Slutsky effect. Hence, for this topic the lecture and book are not as closely related, which may be a bit confusing. We will only cover an informal version of the Slutsky Equation: Total effect= Substitution effect + Income effect. In chapter 8, sections you will find most relevant are: introduction and the first half of 8.1 (before reference to the figure 8.1), 8.3, 8.4, 8.6, 8.8, 8.9. Additional reference on Hicks substitution and compensated demand: Nicholson, Microeconomic Theory: basic principles and extensions. Readings from Varian, Intermediate Microeconomics , 6 th . Edition Chapter numbers may vary in the different editions....
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This note was uploaded on 02/23/2008 for the course ECON 3130 taught by Professor Masson during the Spring '06 term at Cornell University (Engineering School).
- Spring '06