If we can isolate the income and substitution effects we can determine how much of the total change in consumption is due to each separate effect.

    When prices increase, it's as if our consumer's income falls. In order to compensate her for this we have to give her back income equivalent to what she lost. If we give her back enough income so that she can exactly purchase her original consumption bundle, A, but keep the new higher price for videos, we will have eliminated the income effect. This is equivalent to shifting the new budget constraint out until she can afford bundle A, illustrated by the green compensated budget to the right.

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