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Figure: Income and Substitution Effects
-(Figure: Income and Substitution Effects) Look at the figure Income and Substitution Effects. Carlos is originally consuming his optimal consumption bundle at point A when the price of gasoline falls. The movement from K₁ to K₂ reflects the _____ the decrease in the price of gasoline.

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Figure: Income and Substitution Effects

-(Figure: Income and Substitution Effects) Look at the figure Income and Substitution Effects. Carlos is originally consuming his optimal consumption bundle at point A when the price of gasoline falls. The movement from K₁ to K₂ reflects the _____ the decrease in the price of gasoline.

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The movement from K1 to K2 reflects the substitution effect of the decrease in the price of gasoline, as it shows the change in consumption due to the relative price change, holding utility constant.

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