What is the correct answer?


When the income of consumer increases then budget line will:

A. Get steeper

B. Shift parallel to right

C. To get flatter

D. To shift upward

Correct Answer :

B. Shift parallel to right

{Shown in below diagram}

The effect on the demand for a product as a result of an increase in income can also be analyzed using indifference curve analysis. An increase in income shifts the budget line out parallel. The relative prices of the products have not changed so the gradient of the budget line is the same; income has increased so the budget line has shifted outwards as more of the products can be purchased. The new combinations of products that maximize utility can be identified; from this the impact of income changes on the demand for a product can be analyzed. In the diagram above on the left B is a normal good. An increase in income increases the quantity demanded.

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