Glossary · Micro · Consumer theory

Slutsky equation

The formula that splits the total effect of a price change on quantity into a substitution effect (the swap toward the cheaper good at fixed satisfaction) and an income effect (the change in buying power). It is the algebra behind the two-effect story of the demand curve.

Also called: Hicksian decomposition, Slutsky decomposition

Taught in: The Income Effect

Related terms

Substitution effect Income effect

More from consumer theory

Axioms of consumer preference Budget line Corner solution Engel curve Giffen good Indifference curve Marginal rate of substitution (MRS)Marginal utility (MU)

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