We once again consider a price increase. Suppose the price of Ramen rises to PR2 causing the budget constraint to become steeper. When our consumer finds herself on the higher price budget she chooses to purchase RN packets of Ramen.

    Naturally, we expect less Ramen to be bought if its price increases. The total reduction in quantity demanded for this consumer is RO - RN. We know that Ramen is a good that is purchased mainly to save money, suggesting that it's probably inferior for many consumers. By separating the income and substitution effects we'll be able to see how each affects demand for Ramen.

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