substitution effect away from pizza and toward haircuts is not as strong, and the income effect on is relatively

stronger, then Ogden will be more likely to react to the higher price of pizza by consuming less of both goods.

In this case, his optimal choice after the price change will be above and to the left of choice B on the new

budget constraint.

Although the substitution and income effects are often discussed as a sequence of events, it should be

remembered that they are twin components of a single cause—a change in price. Although you can analyze

them separately, the two effects are always proceeding hand in hand, happening at the same time.

Indifference Curves with Labor-Leisure and Intertemporal Choices

The concept of an indifference curve applies to tradeoffs in any household choice, including the labor-leisure

choice or the intertemporal choice between present and future consumption. In the labor-leisure choice, each
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