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Graph 2 below shows the indifference curves and budget constraints for an individual. Suppose that BC 1 reflects the original prices of the goods along
Graph 2below shows the indifference curves and budget constraints for an individual. Suppose that BC1reflects the original prices of the goods along with the income of the consumer. Then, the price of one of the goods changes, but the price of the other good and the income of the consumer remains the same. The budget constraint of the consumer after the price change is BC2. Note that the budget constraint BCgis there simply to separate the income and substitution effect and is not a real budget constraint that the individual faces.
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