When we graphically isolate the substitution effect of a change in the price of one good,utility is held constant.

Question

Quizplus · Accepted Answer

When we graphically isolate the substitution effect, we shift the budget line parallel to the original budget line until it is tangent to the new indifference curve at the original consumption bundle. This ensures that the consumer remains indifferent between the two consumption bundles before and after the price change, and hence, utility is held constant.

When We Graphically Isolate the Substitution Effect of a Change