but not directly through point A. See Figure B9.
530 B • Indifference Curves

FIGURE B9

Step 4. Now, draw the original indifference curve, so that it is tangent to both point A on the original budget

line and to a point C on the dashed line. Many students find it easiest to first select the tangency point C where

the original indifference curve touches the dashed line, and then to draw the original indifference curve

through A and C. The substitution effect is illustrated by the movement along the original indifference curve as

prices change but the level of utility holds constant, from A to C. As expected, the substitution effect leads to

less consumed of the good that is relatively more expensive, as shown by the “s” (substitution) arrow on the

vertical axis, and more consumed of the good that is relatively less expensive, as shown by the “s” arrow on the

horizontal axis. See Figure B10.

FIGURE B10
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