Suppose that Sonya faces an increase in the price of pasta, as depicted below, moving her from an optimum bundle of rice and pasta at A to an optimal bundle at B.
a. Trace a copy of this diagram. Graphically depict the substitution and income effect.
b. Which effect is strongest? How can you tell?

Transcribed Image Text:

Quantity of pasta (cups) 6 0 2 4 6810 Quantity of rice (cups)