This video shows how to draw income and substitution effects for a price decrease and I'm mumbling professor. Again, by drawing your axes and labeling them. Milk cookies. I'm going to show the effect of a decrease in the price of milk. I draw my original budget line and then the new budget line representing the cheaper milk price. Original budget line. New budget line showing greater affordability of milk. Next thing to do is to show the consumer's optimal choice before and after the price increase. The optimal choice is where the indifference curve is just tangent to the budget constraint. Here's the consumer's original indifference curve. Here's the indifference curve after the change in prices. Notice how when I drew it, I moved the paper around and drew it upside down like this. Original indifference curve after the price fall. Now I want to break down that change in consumption choices into a substitution effect and an income effect. And the substitution effect is equal to the change in milk consumed holding real income constant. What that means is the effect of the price decrease keeping the consumer on the original indifference curve. So to do that, I want to take the new prices, the price ratio, the lower price ratio and then pull back until I'm on my original indifference curve. Something like that. So the important thing is parallel to the new budget line just tangent to the original indifference curve. Now the original choice might be something like five glasses of milk. Put it over here so you can see it better. The original choice might be something like five glasses of milk. The new choice, something like ten glasses of milk and this intermediate point, something like six glasses of milk. What that tells us is that the effect of the change in relative prices holding income constant is to increase milk consumption by one cup. That's the substitution effect, the movement from five to six glasses of milk. The movement from B to C is the impact of falling prices through the increase in consumers purchasing power. Because milk is now cheaper, the consumer has more purchasing power, their real income has increased that increase in real income causes this increase in milk consumption from six to ten cups. That's the income effect. So from five to six, so this distance here, this horizontal distance between A and B is the substitution effect, the distance between B and C is the income effect. So this is one thing to bear in mind when you're doing these and this is just zooming in. If you think of these points here, A and B, if you zoomed in, the right way to do them would be something like this. So with A tangent to the original budget constrained, B tangent to this budget constrained that we've constructed that has the new relative prices but keeps the consumer under original and difference curve. That's the right way to draw it. The most common mistake that people make when drawing income and substitution effects is to have the indifference curve tangent at the point where the budget lines cross. That's a problem because here you have no substitution effect at all. I mean sometimes you might want to have a zero substitution effect but if you're trying to show a positive substitution effect, you're not going to get very far with that. So anyway, that is the, that is how to draw income and substitution effects by Mumbling Professor.