graphical tool inserted in a specific way: It is inserted so that it is parallel with the new budget constraint, so it

reflects the new relative prices, but it is tangent to the original indifference curve, so it reflects the original

level of utility or buying power.

Thus, the movement from the original choice (A) to point C is a substitution effect; it shows the choice that

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B • Indifference Curves 525

Ogden would make if relative prices shifted (as shown by the different slope between the original budget set

and the dashed line) but if buying power did not shift (as shown by being tangent to the original indifference

curve). The substitution effect will encourage people to shift away from the good which has become relatively

more expensive—in Ogden’s case, the haircuts on the vertical axis—and toward the good which has become

relatively less expensive—in this case, the pizza on the vertical axis. The two arrows labeled with “s” for
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