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In microeconomics, the total effect of a price change of a good on its quantity demanded is called the *Price Effect*. This price effect is decomposed into two parts: Substitution Effect and Income Effect. There are two main approaches used to explain this decomposition: 1. Hicksian (Compensated) Approach 2. Slutsky (Uncompensated) Approach --- ### 1. Hicksian Approach Substitution Effect: It isolates the effect of a change in relative prices, keeping the consumer’s utility constant (same level of satisfaction). Income Effect: It captures the effect of the change in the consumer’s real income (purchasing power) after ____ _______ __________ ____ __________ __________ __________ ___ _______ ___ ___.
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