Slutsky Revisited: A New Decomposition of the Price Effect

Sasakura, Kazuyuki

doi:10.1007/s40797-016-0034-y

Cited by 5 publications

(6 citation statements)

References 17 publications

(17 reference statements)

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“…Then the two factors (capital and technology labour) in Solow model will be compared with the two factors (substitute and income) in Slutsky equation (Slutsky, 1915). IHR Sasakura (2016) states "The Slutsky equation teaches us, quite correctly, that the price effect can be decomposed into the substitution effect and the income effect (the Slutsky decomposition). It has been the most fundamental tool not only for pure demand theory but also for wide applications, microeconomic or macroeconomic.…”

Section: Slutsky Equationmentioning

confidence: 99%

Using Slutsky equation to find the hotel growth model in the destination life cycle: an empirical study in Myrtle Beach

Tran

2023

IHR

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PurposeThe purpose of this paper is to examine the hotel growth model including hotel brand, culture and life cycle phases of the Myrtle Beach, South Carolina, the fastest growing tourism destination in the United States.Design/methodology/approachCulture reflecting consuming behaviour of low-context innovators and high-context imitators is measured by the price elasticity of demand (PED). Hotel brand reflecting guests’ hotel class is measured by the income elasticity of demand. Autoregressive distributed lag has been conducted on the Smith Travel Research data in 33 years (1989–2022) to determine the relationship among hotel brand, culture and life cycles.FindingsSkilled labour is the key to make hotels grow. Therefore, increase room rates when hotels possess skilled professionals and decrease room rates when hotels have no skilled professionals. During the rejuvenation in Myrtle Beach (1999–2003), hoteliers increased room rates for innovators due to skilled professionals to increase revenue. Otherwise, a decrease in room rates due to lack of skilled professionals would lead to increase revenue.Research limitations/implications(1) Although Myrtle Beach is one of the fastest growing tourism destinations in the US, it has a relatively small geographic area relative to the country. (2) Data cover over one tourist life cycle, so the time span is relatively short. Hoteliers can forecast the number of guests in different culture by changing room rates.Practical implicationsTo optimize revenue, hoteliers can select skilled labour in professional design hotel brands which could make an increase in demand for leisure transient guests no matter what room rates increase after COVID-19 pandemic.Social implicationsThe study has considered the applied ethical processes regarding revenue management that would maximize both revenue and customer satisfaction when it set up an increase in room rates to compensate for professional hotel room design or it decreases room rates for low-income imitators in exploration and development.Originality/valueThis research highlights that (1) skilled design in the luxury hotel brand is the key for the hotel growth and (2) there is a steady state of the growth model in the destination life cycle.

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Section: Slutsky Equationmentioning

confidence: 99%

Using Slutsky equation to find the hotel growth model in the destination life cycle: an empirical study in Myrtle Beach

Tran

2023

IHR

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“…Recently I have found a way to decompose the Slutsky decomposition further as in Sasakura [4] . According to it, the price effect can be decomposed into three effects, i.e., the unit-elasticity effect, the transfer effect, and the substitution effect.…”

Section: Volume 2 Issue 2 | 2017 |mentioning

confidence: 99%

“…4 Since Hicks dealt with the case of a normal good, the substitution effect from point to point ′ along an indifference curve ( 2 ) and the income effect from point ′ to point are both nega-tive. Therefore the price effect is negative according to the Slutsky decomposition as in Figure 1.…”

Section: Concluding Remarkmentioning

confidence: 99%

Decomposing the Slutsky Decomposition for the First Time in a Century

Sasakura

2017

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Abstract:The Slutsky decomposition is a mathematical formula which has been used for a very long time in economics to analyze how the demand for a good changes when its price goes up. Such a change in the demand is called the price effect. Most people will expect a decrease in the demand in response to a rise in the price. In other words, they will have a downward sloping demand curve in mind. Indeed they are right in usual cases. In terms of economics it is said that the price effect is usually negative. But why? The Slutsky decomposition gives a correct answer to this question by decomposing the price effect into the substitution effect and the income effect. It is already known that the substitution effect is always negative, while the income effect is also negative if a good under consideration is "normal." Since the sum of the two effects equals the price effect, it can be concluded that a demand for the good decreases when its price goes up, or the demand curve is downward sloping, in a "normal" situation. The Slutsky decomposition is so elegant and powerful that there would not be any economist who studies consumer behavior without mentioning it. Then, is there other decomposition than the Slutsky? This paper introduces a new one which decomposes the price effect into the unit-elasticity effect and the ratio effect. The unit-elasticity effect means by how much the demand decreases in response to a rise in the price with the expenditure on it as fixed. The ratio effect means by how much the demand changes due to a change in the ratio of the expenditure on it to total income. The former effect is always negative, but the latter effect may be positive even in a "normal" situation. It is shown that a new decomposition is obtained by decomposing the Slutsky decomposition.

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“…Comparing Figure 8 of Hicks [8] and Figure 1 of this paper reveals that points , ′ , and in the former correspond respectively to points , , and in the latter with and as initial optimal points and and as new optimal points after a price rise. 4 Since Hicks dealt with the case of a normal good, the substitution effect from point to point ′ along an indifference curve ( 2 ) and the income effect from point ′ to point are both nega-…”

Section: Concluding Remarkmentioning

confidence: 99%

“…For a theoretical example, Doi et al[5] succeeded in providing a beautiful utility function leading to an upward sloping demand curve. For interesting empirical examples of Giffen goods, see Battalio et al[6] and Jensen and Miller[7] 4. In fact Hicks discussed the case of a price fall.…”

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confidence: 99%

Decomposing the Slutsky Decomposition for the First Time in a Century

Sasakura

2017

Self Cite

View full text Add to dashboard Cite

<p>The Slutsky decomposition is a mathematical formula which has been used for a very long time in economics to analyze how the demand for a good changes when its price goes up. Such a change in the demand is called the price effect. Most people will expect a decrease in the demand in response to a rise in the price. In other words, they will have a downward sloping demand curve in mind. Indeed they are right in usual cases.In terms of economicsit is said that the price effect is usually negative. But why? The Slutsky decomposition gives a correct answer to this question by decomposing the price effect into the substitution effect and the income effect. It is already known that the substitution effect is always negative, while the income effect is also negative if a good under considerationis “normal.”Since the sum of the two effects equals the price effect, it can be concluded that a demand for the good decreases when its price goes up, or the demand curve is downward sloping, in a “normal” situation. The Slutsky decomposition is so elegant and powerful that there would not be any economist who studies consumer behavior without mentioning it. Then, is there other decomposition than the Slutsky? This paperintroduces a new one which decomposes the price effect into the unit-elasticity effect and the ratio effect. The unit-elasticity effect means by how much the demand decreases in response to a rise in the price with the expenditure on it as fixed. The ratio effect means by how much the demand changes due to a change in the ratio of the expenditure on it to total income. The former effect is always negative, but the latter effect may be positive even in a “normal” situation. It is shown that anew decomposition is obtained by decomposing the Slutsky decomposition.</p>

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Slutsky Revisited: A New Decomposition of the Price Effect

Cited by 5 publications

References 17 publications

Using Slutsky equation to find the hotel growth model in the destination life cycle: an empirical study in Myrtle Beach

Using Slutsky equation to find the hotel growth model in the destination life cycle: an empirical study in Myrtle Beach

Decomposing the Slutsky Decomposition for the First Time in a Century

Decomposing the Slutsky Decomposition for the First Time in a Century

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