feel the pull of both substitution and income effects at the same time.

Using indifference curves, you can illustrate the substitution and income effects on a graph. In Figure B4,

Ogden faces a choice between two goods: haircuts or personal pizzas. Haircuts cost $20, personal pizzas cost

$6, and he has $120 to spend.

FIGURE B4 Substitution and Income Effects The original choice is A, the point of tangency between the original

budget constraint and indifference curve. The new choice is B, the point of tangency between the new budget

constraint and the lower indifference curve. Point C is the tangency between the dashed line, where the slope shows

the new higher price of haircuts, and the original indifference curve. The substitution effect is the shift from A to C,

which means getting fewer haircuts and more pizza. The income effect is the shift from C to B; that is, the reduction
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