Even though the direction of the substitution effect is always the opposite of the direction of the price change, the direction of the income effect depends on whether the good is normal or inferior.

    The compensated budget allowed us to isolate the substitution effect and it also enables us to isolate the income effect. The compensated budget has the same slope as the higher price budget on which our consumer chose point B. On these two budgets our consumer would face the same prices but with different incomes, so the difference in video purchases on the two budgets is due to the income effect. Videos are a normal good for her, so she buys fewer videos on the lower budget.

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