Question

Explain the effects on budget line due to the changes in income with the help of a diagram.

Answer 1

Explanation:

Changes in income affect a consumer´s choice. The new equilibrium for a greater income is higher on the budget line because the increased income allows the consumer to purchase more of both products. Higher income increases affordability of the goods, while lower income decreases it.

Answer 2

Changes in Income and Shifts in Budget line:

8.18. Let BL be the initial budget line, given certain prices of goods and income.

' If the consumer's income increases while the prices of both goods X and Y remain unaltered, the price line shifts upward (say, to B'L') and is parallel to the original budget line BL.