complementary motivations that arise in response to a change in a price, wage or rate of return—namely, the

substitution and income effects.

If you are finding it a little tricky to sketch diagrams that show substitution and income effects so that the

points of tangency all come out correctly, it may be useful to follow this procedure.

Step 1. Begin with a budget constraint showing the choice between two goods, which this example will call

“candy” and “movies.” Choose a point A which will be the optimal choice, where the indifference curve will be

tangent—but it is often easier not to draw in the indifference curve just yet. See Figure B7.

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B • Indifference Curves 529

Step 2. Now the price of movies changes: let’s say that it rises. That shifts the budget set inward. You know that

the higher price will push the decision-maker down to a lower level of utility, represented by a lower
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