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B • Indifference Curves 531

substitution effect will exceed the income effect. If you insert point B so that it lies a little to the left of point A,

then the income effect will exceed the substitution effect. The income effect is the movement from C to B,

showing how choices shifted as a result of the decline in buying power and the movement between two levels

of utility, with relative prices remaining the same. With normal goods, the negative income effect means less

consumed of each good, as shown by the direction of the “i” (income effect) arrows on the vertical and

horizontal axes. See Figure B11.

FIGURE B11

In sketching substitution and income effect diagrams, you may wish to practice some of the following

variations: (1) Price falls instead of a rising; (2) The price change affects the good on either the vertical or the

horizontal axis; (3) Sketch these diagrams so that the substitution effect exceeds the income effect; the income
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