Figure 10-7

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 10-7.
-Refer to Figure 10-7.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 10-7
  
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 10-7.
-Refer to Figure 10-7.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

The substitution effect represents the change in quantity demanded of a good due to a change in its price, assuming that all other factors remain constant. In this case, when the price of Pilates sessions rises from $20 to $30, the relative price of Pilates increases compared to the price of Yoga. As a result, Manuri will substitute away from Pilates towards Yoga, as Yoga now becomes relatively cheaper. This movement from A to D in Figure 10-7 represents the substitution effect. The new optimal bundle for Manuri is point D, where she consumes 6 Pilates classes and 18 Yoga classes. Therefore, the best choice for Manuri after this price change is to decrease her consumption of Pilates and increase her consumption of Yoga, as reflected in her new optimal bundle at point D.

Figure 10-7 Manuri Has $300 to Spend on Pilates Classes and Yoga