Slutsky's theorem

Slutsky's theorem is a concept in econometrics and consumer theory that deals with the effects of price changes on the demand for goods. It decomposes the total change in demand for a good into two components: the substitution effect and the income effect. ### Key Components of Slutsky's Theorem: 1. **Substitution Effect**: This refers to the change in the quantity demanded of a good in response to a change in its price, holding utility constant.