Income Effect & Substitution Effect:

If Annie's hourly income remains $160. The price of energy drink is on sale and

drops to $2 a six-pack of can energy drink, while the price of popcorn remains

at $5 a bag.

a. Draw the new budget line(s) (with energy drink on the x-axis, and popcorn on

the y-axis)

b.Use indifference curve to identify the change in quantity purchased

c. Illustrate the income effects (points and distance) and substitution

effects (points & distance)