An individual has a fixed income and buys two goods, apples and bananas.

(a)Explain, using a diagram, how the effect of a rise in the price of apples can be decomposed into a substitution effect and an income effect.

(b)Under what conditions would a rise in the price of apples lead to an increase in this individual's demand for apples?

Suppose now that the individual has an endowment of 3 apples and 1 banana, and has no income other than that from selling her endowment. The price of bananas is always 1. Assume that she has well-behaved preferences. Initially the price of apples is 1 and she consumes 2 apples and 2 bananas.

(c)Would a rise in the price of apples to 2 make the individual better off or worse off?

(d)Would a fall in the price of apples to make her worse off (compared to the situation where the price of apples was 1)?