Connie, as you may recall, always takes one cup of cookies with one cup of coffee. Cookies cost $2 per cup, and coffee costs $1 per cup. Connie has $12 to spend on cookies and coffee. Consider a price drop in cookies to $1 per cup.
(a) Illustrate Connie's optimal consumption bundles beforeand after the price change with a graph. Explain your reasoning.
(b) Decompose the change in Connie's consumption of cookiesinto the income effect and the substitution effect. Illustrate them in the graph.