Question
5. Income Effect & Substitution Effect - (still use budget line with energy drink on the y-axis, and popcorn on the x-axis). If Annie's hourly
5. Income Effect & Substitution Effect - (still use budget line with energy drink on the y-axis, and popcorn on the x-axis). If Annie's hourly income remains $180. The price of popcorn is on sale and price drops to $3 a bag (from $6 a bag), while the price of a six-pack of can energy drink remains at $4.
a. Draw the new budget line(s) (with popcorn on the x-axis, and six-pack of energy drink on the y-axis)
b. Use indifference curve to identify the change in quantity purchased
c. and illustrate the income effects (points and distance) and substitution effects (points & distance)
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