CHAPTER 21THE THEORY OF CONSUMER CHOICE477of Pepsi falls, the consumer moves from the initial optimum, point A, to the newoptimum, point C. We can view this change as occurring in two steps. First, theconsumer moves alongthe initial indifference curve I1from point A to point B. Theconsumer is equally happy at these two points, but at point B, the marginal rate ofsubstitution reflects the new relative price. (The dashed line through point Breflects the new relative price by being parallel to the new budget constraint.)Next, the consumer shiftsto the higher indifference curve I2by moving frompoint B to point C. Even though point B and point C are on different indiffer-ence curves, they have the same marginal rate of substitution. That is, the slopeof the indifference curve I1at point B equals the slope of the indifference curve I2at point C.Although the consumer never actually chooses point B, this hypothetical pointis useful to clarify the two effects that determine the consumer’s decision. Notice
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