One of my friend has a problem on substitution effect. The original equilibrium point (that is utility-maximizing bundle) in the graph shown below is at point A. The price of good Y is increased, pivoting the budget constraint down to its latest level.
a. Find out and clearly label the substitution effect for good Y on the graph.
b. Supposing that X and Y are both normal goods, draw an indifference curve tangent to the new, lower budget constraint. Now Clearly indicate where the tangency point is and then label the income effect for the good Y on the graph.