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.

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.

Inferior goods

Also see: Introduction to indifference curves

Indifference curves and consumer equiibrium