The equilibrium choice is where an indifference curve is tangent to the budget line. Bundles on higher indifference curves are preferable but not affordable. Bundles on lower indifference curves are affordable but are less preferred. The point of tangency is the highest indifference curve attainable. Interpreting the tangency point.
Slopes are equal at point of tangency.
Willingness to substitute in consumption equals ability to substitute in market. Comparative Statics Price Changes and Consumer Behavior Initial equilibrium where original budget line is tangent to an indifference curve. A price change leads to a rotation of the budget line and a new equilibrium choice where the new budget line is tangent to an indifference curve. Position of new equilibrium depends on the consumer's preferences and the relationship between X and Y. Substitutes versus Complements. Inventory Management A change in the price of a good changes sales of the item itself, it's substitutes, and it's complements.