You have been stopped on State Street on your way to lunch by an evil sorcerer. He knows you have enough money to get 4 slices of pizza and 2 sodas given the prices the restaurant currently charges, and he knows that this combination would have given you 100 units of happiness.
"Muhahah" he says. "You have two choices:
1. I can make the restaurant change the price of pizza so that by the time you get there your budget constraint has changed
or
2. I can make some of the money in your pocket disappear even though the prices are the same.
Either way your new utility will be only 75 utils!!!
He cackles wildly while you make your choice.
If you choose option 2, what changes in your optimization graph, and what can that be used to show?
Your budget constraint would shift in by the amount he stole from your pocket, which could show the substitution effect. The new budget constraint would have the same slope as your old budget constraint.
Your budget constraint would shift in by the amount he stole from your pocket, which could show the income effect. The new budget constraint would have a different slope from your old budget constraint.
Your budget constraint would shift in by the amount he stole from your pocket, which could show the substitution effect. The new budget constraint would have a different slope from your old budget constraint.
Your budget constraint would shift in by the amount he stole from your pocket, which could show the income effect. The new budget constraint would have the same slope as your old budget constraint.