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    Slutsky Tag

    Slutsky and Pareto Equations Consider the problem of maximizing the utility function u=f(c)+g(s) subject to the budget constraint pc+s=y, where c is consumption and s is savings . Derive and interpret the Slutsky equations and explain what happens if g"(s)=0 . SAMPLE ANSWER: We can make sense of the substitution and the income effects by this intuitive story. Suppose a consumer