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Figure 5.11 The Shape of Indifference Curves Determines the Size of the Substitution Effect
(a) When the indifference curve is highly curved, the MRS changes quickly along the curve. Thus, any given price change will not change consumption choices by much. Here, the original consumption bundle A is 2 basketball tickets and 2 concert tickets. After a change in prices, the new optimal consumption bundle is A′, and Carlos now demands 1.25 concert tickets and 3 basketball tickets.(b) When the indifference curve is less curved, the MRS does not change quickly along the curve. Thus, any given price change affects consumption choices more strongly. At the new optimal consumption bundle A′, Carlos now demands 0.75 concert tickets and 4 basketball tickets.