The correct answer is D. price effect into substitution and income effect.
Slutsky’s theorem is a microeconomic theorem that decomposes the change in demand for a good into two effects: a substitution effect and an income effect. The substitution effect is the change in demand for a good that results from a change in its relative price, holding real income constant. The income effect is the change in demand for a good that results from a change in real income, holding relative prices constant.
Option A is incorrect because Slutsky’s theorem does not decompose goods into high and low elasticity of demand. The elasticity of demand is a measure of how responsive demand is to changes in price. Goods with high elasticity of demand are those that are very responsive to changes in price, while goods with low elasticity of demand are those that are not very responsive to changes in price.
Option B is incorrect because Slutsky’s theorem does not decompose goods into necessaries and luxuries. Necessities are goods that are essential for survival, while luxuries are goods that are not essential for survival.
Option C is incorrect because Slutsky’s theorem does not decompose goods into high price and low price. The price of a good is the amount of money that a buyer must pay to obtain one unit of the good.
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