Paolo and Sharon Zambetti live in Houston and enjoy going out to fancy restaurants for dinner and to diners for breakfast. 0n the following diagram, the purple curves 1] and 1'2 represent two of their indifference cum for fancy dinners and diner breakfasts. They have $400 per month available to spend on eating out. The price of a diner breakfast is always $5. Each labeled point represents the tangency between a budget constraint and the corresponding indifference curve. 6') T2 DINER BREAKFASTS S m ----l- a --+ I I l 6 FANCY DIN NERS The initial budget constraint (3C1) shows the Zambettis' budget constraint when the price of a fancy dinner is $25. At this price, Paolo and Sharon would choose to consume six fancy dinners. Suppose that the price of a fancy dinner increases to $50, shifting their budget constraint to 3C2, which represents a new relative price of ten diner breakfasts per fancy dinner. (Hint: The blue line labeled H is pamllel to HQ and tangent to I] at point 5.) In order to remain as happy as they were before the price increasethat is, to consume at some point on the same indifference curve as they were on initialiy (Inthe Zambettis' income spent on fancy dinners and breakfast at diners would now have to be . However, in reality, rather than maintaining their original ievel of utility, the Zambettis choose the optimal bundle along their new budget constraint. At this point, they are V off than before the price change in fancy dinners. On the following table, indicate whim point movement represents the substitution e'ect and income effect for fancy dinners when the price increases from $25 to $50. Then indicate the consumption change that resufts om each e'ect. Consumption Change Fancy Dinners Represented By... (Quantity of fancy dinners) Substitution Effect V 7 Income Effect V V In this case, the price increase of fancy dinners causes the Zambettis's real income to Y . Because of the change to Paolo and Sharon's real income and the direction of the income effect, fancy dinners are V for the Zambettis