Distinguish between the income effect and substitution effect using indifference curve.

Substitution effect
Substitution effect is the change in an items consumptions associated with a change in the price of
the item, with the level of utility held constant. When the price X declines, the substitution effect
always leads to an increase in the quantity of X demanded. Graphically, the substitution effect is the
movement from point A to D. This point is on the same indifference curve as the original
consumption bundle and it is the point where a budget line that is parallel to the new budget line is
just tangent to initial indifference curve. The point D reflects the consumers choice if faced with the
new prices and the compensated income. The substitution effect is the difference between the
original consumption and the new intermediate consumption as shown on the graph below:

Income effect
The income effect is the change in an items consumption brought about by the increase in
purchasing power, with the price of the item held constant. It is the effect due to the change in real
income, when a persons income increases, the quantity demanded for the product may increase
(normal good) or decrease (inferior good). The income effect can be both positive and negative
depending on whether the product is a normal or inferior good.