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

in buying power that causes a shift from the higher indifference curve to the lower indifference curve, with relative

prices remaining unchanged. The income effect results in less consumed of both goods. Both substitution and

income effects cause fewer haircuts to be consumed. For pizza, in this case, the substitution effect and income

effect cancel out, leading to the same amount of pizza consumed.

The price of haircuts rises to $30. Ogden starts at choice A on the higher opportunity set and the higher
indifference curve. After the price of haircuts increases, he chooses B on the lower opportunity set and the

lower indifference curve. Point B with two haircuts and 10 personal pizzas is immediately below point A with

three haircuts and 10 personal pizzas, showing that Ogden reacted to a higher price of haircuts by cutting back
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