Principles of Microeconomics / Unit 5 MIC 0423 short lesson, about 20 seconds
Decomposing a Price Change on the Diagram
Captions available
The idea
After a price rise, draw a line parallel to the new budget line, tangent to the old curve. Along the old curve to that tangency is substitution; from there to the new bundle is the income effect.
In practice
The parallel line has the new prices and the old satisfaction.
Where people slip
The effects are separated for analysis only; one price change causes both at once.
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