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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
(2) hj(u, p) Dj(m[u, p], p)
the individual consumer's reaction to a
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 nmotivatedby J. R. Hicks' graphical pi ay Api
presentation, p. 31, but the usual proof (see (3)
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 D(y, p) = hj(u, p) a Dj(y, p)
Suppose a consumer with income y faces a (4)
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., London
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.
By the way the functions are defined, we L. McKenzie, "Demand Theory Without a
Utility Index," Rev. Econ. Stud., June 1957,
* Graduate student, University of California, Berkeley.
1 The expenditure function has been analyzed by
24,185-89.
L. McKenzie, S. Karlin, and D. McFadden and S. G. P. A. Samuelson, Foundations of Economic
Winter, Jr. Analysis, New York 1967.

139