<P> The substitution effect increases the amount demanded of good Y (\ displaystyle \ Y) from Y 1 (\ displaystyle \ Y_ (1)) to Y s (\ displaystyle \ Y_ (s)) in the diagram . In the example shown, the income effect of the fall in p 1 (\ displaystyle \ p_ (1)) partly offsets the substitution effect as the amount demanded of Y (\ displaystyle \ Y) in the absence of an offsetting income change ends up at Y 2 (\ displaystyle \ Y_ (2)) thus the income effect from the rise in purchasing power due to the price drop is that the quantity demanded of Y (\ displaystyle \ Y) goes from Y s (\ displaystyle \ Y_ (s)) to Y 2 (\ displaystyle \ Y_ (2)). The total effect of the price drop on quantity demanded is the sum of the substitution effect and the income effect . </P> <P> The behavioral assumption of the consumer theory proposed herein is that all consumers seek to maximize utility . In the mainstream economics tradition, this activity of maximizing utility has been deemed as the "rational" behavior of decision makers . More specifically, in the eyes of economists, all consumers seek to maximize a utility function subject to a budgetary constraint . In other words, economists assume that consumers will always choose the "best" bundle of goods they can afford . Consumer theory is therefore based around the problem of generate refutable hypotheses about the nature of consumer demand from this behavioral postulate . </P> <P> In order to reason from the central postulate towards a useful model of consumer choice, it is necessary to make additional assumptions about the certain preferences that consumers employ when selecting their preferred "bundle" of goods . These are relatively strict, allowing for the model to generate more useful hypotheses with regard to consumer behaviour than weaker assumptions, which would allow any empirical data to be explained in terms of stupidity, ignorance, or some other factor, and hence would not be able to generate any predictions about future demand at all . For the most part, however, they represent statements which would only be contradicted if a consumer was acting in (what was widely regarded as) a strange manner . In this vein, the modern form of consumer choice theory assumes: </P> <Dl> <Dt> Preferences are complete </Dt> <Dd> Consumer choice theory is based on the assumption that the consumer fully understands his or her own preferences, allowing for a simple but accurate comparison between any two bundles of good presented . That is to say, it is assumed that if a consumer is presented with two consumption bundles A and B each containing different combinations of n goods, the consumer can unambiguously decide if (s) he prefers A to B, B to A, or is indifferent to both . The few scenarios where it is possible to imagine that decision - making would be very difficult are thus placed "outside the domain of economic analysis". However, discoveries in behavioral economics has found that actual decision making is affected by various factors, such as whether choices are presented together or separately through the distinction bias . </Dd> </Dl>

In order to study how changing price affects consumer decisions