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 income 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 income effect of this price change is represented by the movement from

Quizplus · Accepted Answer

When the price of Pilates increases from $20 to $30, the optimal bundle shifts from point A to point D due to the substitution effect. However, the income effect is negative as the increase in the price of Pilates reduces the purchasing power of Manuri's income. Hence, the optimal bundle shifts from point D to point B, where she buys fewer units of Pilates and more units of Yoga. Therefore, the best choice(s) for Manuri are either point B or any other points on the budget constraint that lies on or below the line connecting B and C.

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