Hicksian substitution refers to the concept in consumer theory that describes how a consumer adjusts their consumption of goods in response to changes in prices while maintaining a constant level of utility. This idea is grounded in the work of economist Sir John Hicks, who distinguished between two types of demand curves: Marshallian demand, which reflects consumer choices based on current prices and income, and Hicksian demand, which isolates the effect of price changes while keeping utility constant.
When the price of a good decreases, consumers will typically substitute it for other goods, increasing their consumption of the less expensive item. This is represented mathematically by the Hicksian demand function , where denotes prices and indicates a specific level of utility. The substitution effect can be visualized using the Slutsky equation, which decomposes the total effect of a price change into substitution and income effects. Thus, Hicksian substitution provides valuable insights into consumer behavior, particularly how preferences and consumption patterns adapt to price fluctuations.
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