Indifference curves – income and demand
Shifts of income – the income-consumption line
The income-consumption line shows the relationship between income and consumption. The budget lines represent increasing levels of income and the income-consumption line connects the equilibrium points at these income levels.
In the first case, as income rises, consumption also rises, indicating a positive income elasticity which is characteristic of a normal good.
In the second next case, as income rises, consumption falls, and the income consumption line is backward bending – indicating a negative income elasticity which is characteristic of an inferior good.
Also see: Introduction to indifference curves
Indifference curves and consumer equiibrium
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