Consumer Choices

This indifference curve shows

• perfect substitutes

• perfect complements

This indifference curve shows perfect

• substitutes

• complements

This could be the indifference curve for following two products

• left shoe and right shoe

• 10 coins of 1 CHF and a 10 CHF bill

• hot dog sausage and hot dog bun

• BMW and Audi

This could be the indifference curve for following two products

• left shoe and right shoe

• 10 coins of 1 CHF and a 10 CHF bill

• hot dog sausage and hot dog bun

• BMW and Audi

When the price of a good falls,

consumer buy more of it, because she/he is richer. This is called the ​​ ​ (a)   .

consumer buy mor of it, because it gets relatively cheaper. This is called the ​ (b)  

• Income Effect
• Substitution Effect

When the price of Good 1 falls, consumption moves from A to B.

Show the different effects.

b

a

substition effect

consumption effect

income effect