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    Income and Substitution Effects

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    Managers are very interested in how a consumer makes choice among alternatives. In this exercise, we ask you to consider the price of gasoline you may purchase to operate your automobile in any month and any alternatives available to you assuming your net income available to make those purchases. Also assume gasoline prices for your auto rose 100% during one difficult summer as our time period for the purpose of discussion. Explain, then, the following effects in terms of the income effect, or the substitution effect, or both effects:

    a. You drove less and purchased less gasoline.

    b. You ate out less often.

    c. You spent less to maintain your automobile.

    d. You took public transportation more often.

    e. You bought a bicycle.

    f. You did not take a vacation away from home.

    g. You bought fewer cloths and made due with more around the home.

    Provide a graph to illustrate each effect.

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