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Figure: Indifference Curves and Consumption Bundles
-(Figure: Indifference Curves and Consumption Bundles) Look at the figure Indifference Curves and Consumption Bundles. In the figure, the initial optimum is at a. The price of hot dogs now increases. The change in hot dog consumption due to the substitution effect is:

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Figure: Indifference Curves and Consumption Bundles

-(Figure: Indifference Curves and Consumption Bundles) Look at the figure Indifference Curves and Consumption Bundles. In the figure, the initial optimum is at a. The price of hot dogs now increases. The change in hot dog consumption due to the substitution effect is:

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The substitution effect is the change in consumption resulting from a change in the relative price of goods, holding utility constant. When the price of hot dogs increases, consumers will substitute away from hot dogs, moving from H₃ to H₂.

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