Figure 8.6

Manuri has $300 to spend on Pilates classes and Yoga classes. The price of a group Pilates class is $20 and the price of a group Yoga class is $10. Manuri's optimal bundle is given by "A" in Figure 8.6.
-Refer to Figure 8.6.Suppose the price of Pilates sessions rise to $30 while income and the price of Yoga sessions remain unchanged.The substitution effect of this price change is represented by the movement from

Question

Figure 8.6
  
Manuri has $300 to spend on Pilates classes and Yoga classes. The price of a group Pilates class is $20 and the price of a group Yoga class is $10. Manuri's optimal bundle is given by "A" in Figure 8.6.
-Refer to Figure 8.6.Suppose the price of Pilates sessions rise to $30 while income and the price of Yoga sessions remain unchanged.The substitution effect of this price change is represented by the movement from

Quizplus · Accepted Answer

With the increase in the price of Pilates sessions, the price ratio of Pilates to Yoga sessions becomes unfavorable for Manuri. Therefore, she substitutes Pilates sessions with Yoga sessions, and her optimal bundle moves from point A to point C. At point C, Manuri consumes fewer Pilates sessions and more Yoga sessions compared to point A. In other words, she reduces the quantity of Pilates sessions demanded due to the increase in its price and replaces it with relatively cheaper Yoga sessions to maintain her utility level. Therefore, point C represents the substitution effect of the price change.

Figure 8.6 Manuri Has $300 to Spend on Pilates Classes and Yoga