Economics, 3rd Edition

A Change in Price

When the price of cola falls, the 

consumer’s budget constraint 

pivots outward and changes 

slope. The consumer moves 

from the initial optimum to the 

new optimum, which changes 

his purchases of both cola and 

pizza. In this case, the quantity 

of cola consumed rises and the 

quantity of pizza consumed falls.

A

Ch

i P i

FIGURE 5.14

1. A fall in the price of cola pivots

   the budget constraint outward ...

0

Quantity

of cola

1000

C

Quantity

of pizza

100

Initial optimum

A

New optimum

Initial

budget

constraint

2. ... reducing pizza

    consumption ...

I

1

I

2

New budget constraint

3. ... and raising

    cola consumption.

500

How such a change in the budget constraint alters the consumption of both goods depends on the 

consumer’s preferences. For the indifference curves drawn in Figure 5.14, the consumer buys more cola 

and less pizza.