1. moves upward to the left along his demand curve, which shifts to the left on account of the income effect.
2. moves up and to the left along his demand curve substituting other beverages for orange juice.
3. moves upward to the left along his demand curve, which is steeper on account of the income effect.
4. moves down to the left along his demand curve, taking into account both income and substitution effects.
Choose the option that yields the correct answer.
The correct answer is option 2. The consumer moves up to the left along his demand curve, substituting other beverages for orange juice. He also would reduce his orange juice consumption by a trivial amount as a result of the income effect (under the very reasonable assumption that orange juice is a normal good). This income effect will make the demand curve slightly flatter than it would otherwise be.
The demand curve will shift to the left if the consumers' money income declines---less will be demanded at each price of orange juice. But it does not shift as a result of the income effect of a price change since his money income is unaffected---only the purchasing power of his money income has changed. This real income effect of the price change is included in the movement along the demand curve and hence is embodied in the slope of the curve.
When the good is normal the income effect makes the demand curve flatter, not steeper. Option 4 is incorrect because the demand curve is negatively sloped---one could not move downward to the left along the curve in response to an increase in the price of orange juice.