Economics for Today 9th Edition by Irvin Tucker

Exercise 45

TESTING THE LAW OF DEMAND WITH WHITE RATS
Applicable Concept: substitution effect
Economists often envy the controlled laboratory experiments of biologists and other scientists. In the real world, the economist is unable to observe consumer behavior without prices of other goods, expectations, and other factors changing. So it is no wonder that the idea of studying the behavior of white rats to test the law of demand was intriguing. The question was whether the consumer choice of a white rat supports the downward-sloping demand curve.
Standard laboratory rats were placed in experimental cages with two levers. If a rat pressed one lever, nonalcoholic Collins mix was the reward. Pressing the second lever rewarded the rat with root beer. It seems rats are fond of these two beverages. Each rat was given a limited "income" of lever presses per day. After, say, 300 presses, a light above the lever went out, signaling the daily budget was gone. The next day the light was turned on, and the rat was given a new income of lever presses. The "price" of each good corresponded to the number of lever pushes required to obtain 1 milliliter of liquid. For example, if the number of pushes per milliliter for Collins mix released increased by 10 percent, this equaled a 10 percent increase in the price of Collins mix.
The crucial test was to measure the substitution effect resulting from a change in price. As explained in the text, a change in price sets in motion both an income effect and a substitution effect. In the experiment, the price of Collins mix was lowered by decreasing the number of pushes required per milliliter. At the same time, the price of root beer was raised by increasing the number of pushes required per milliliter. To eliminate the income effect, the number of lever presses was raised to compensate for loss of purchasing power. For example, if a rat purchased 4 milliliters of Collins mix per day and 11 milliliters of root beer before the price change, it would be given enough extra pushes after the price change to still purchase these quantities.
In one experiment, a male albino rat was given 300 pushes per day for two weeks, and both liquids were priced at 20 pushes per milliliter. The rat soon settled into a consistent consumption pattern of 4 milliliters of Collins mix and 11 milliliters of root beer per day. Then the experimenters made changes in prices and income. The price (pushes per milliliter) of Collins mix was cut in half, and the price of root beer was doubled. At the same time, the total income of pushes was increased just enough to allow the rat to afford its initial consumption pattern. Stated differently, the income effect was eliminated in order to focus on the substitution effect. After two weeks of decisions under the new conditions, the rat changed its consumption pattern to 17 milliliters of Collins mix and 8 milliliters of root beer per day.
Source: John H. Kagel, Raymond C. Battalio, Howard Rachlin, and Leonard Green, "Demand Curves for Animal Consumers," Quarterly Journal of Economics 96 (February 1981): pp. 1-16.
Based on the behavior of the rat described earlier, what do you conclude about the substitution effect and the slope of the demand curve?