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... relative price constant to show what happens to people's consumption ability when the price of a good varies. The changes in consumption are different for varieties of good. The situation of normal good, whose quantity demanded rises when its price falls down or income goes up, is shown in Figure 1. The original budget line BC1 tangents the indifference curve IC1 at point A. When price of good A falls down as other prices remain constant, the real income increases. BC1 rotates rightward to BC2, tangents the new indifference curve IC2 at point B, which means the quantity demanded of good A enlarges from Q1 to Q2. To disentangle substitution effect from income effect by using the compensating variation method, suppose that when price of A decreases, people's income is cut down so as to keep them on the original indifference curve IC1. In that case, BC2 is shifted leftward to ...