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A One Line Proof of the Slutsky Equation

Article  in  American Economic Review · January 1972

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American Economic Association

A "One Line" Proof of the Slutsky Equation

Author(s): Philip J. Cook
Source: The American Economic Review, Vol. 62, No. 1/2 (Mar. 1, 1972), p. 139
Published by: American Economic Association
Stable URL: http://www.jstor.org/stable/1821480
Accessed: 05-06-2018 20:32 UTC

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 A "One Line" Proof of the Slutsky Equation

By PHILIP J. COOK*

One focus of the usual classroom discussion have the identity

of consumer theory is the demonstration that
the individual consumer's reaction to a
(2) hj(u, p) Dj(m[u, p], p)
change in the market price of a commodity Taking derivatives with respect to the price
can be usefully broken down into vectors of pi of some commodity i yields, by the com-
substitution effects and income effects. The posite function rule:
Slutskv equation relating the price effect to
the substitution and income effects can be ahj(u, p) aDj(y, p) am(u, p)
simply nmotivated by J. R. Hicks' graphical
presentation, p. 31, but the usual proof (see
(3) pi ay Api
Paul Samuelson) is very tedious and non-
aDj(y, p)
intuitive. If the instructor includes a discus- api
sion of the expenditure function in his cur-
riculum, however, he has available a concise, where y = m(u, p). Using (1) and rearranging
intuitively appealing proof of the Slutsky terms gives us the Slutsky equation:
equation. 1
Suppose a consumer with income y faces a
(4) D(y, p) = hj(u, p) a Dj(y, p)
vector of commoditv prices p. His Marshal- api api ay
lian demand curve for commodity j is given
noting again that y = m(u, p).
by xj = Dj(y, p). The minimum expenditure
necessary for the consumer to achieve any REFERENCES
utility level u is given by his expenditure
J. R. Hicks, Value and Capital, 2d ed., Lon
function, y = m(u, p) (here y is in units of the
1946.
jth good). His Hicksian income-compensated S. Karlin, Mathematical Alethods and Theory
demand for commodity j is represented in Games, Programming, and Economics,
xj= hi(u, p); if m is differentiable, we have vol. 1, Reading, Mass. 1959.
the well-known result that D. McFadden and S. G. Winter, Jr., Theory
of Resource Allocation and Prices, unpub-
(1) hj(u, p) = am(u, p) lished manuscript, Univ. California, Berke-
api ley 1969.
L. McKenzie, "Demand Theory Without a
By the way the functions are defined, we
Utility Index," Rev. Econ. Stud., June 1957,
* Graduate student, University of California, Berkeley.
24,185-89.
1 The expenditure function has been analyzed by
P. A. Samuelson, Foundations of Economic
L. McKenzie, S. Karlin, and D. McFadden and S. G.
Winter, Jr. Analysis, New York 1967.

139

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