Figure 6A-5 Income-Consumption Line
example of which is shown in Figure 6A-5. This line shows how Hugh’s
consumption bundle changes as his income changes, with relative prices
being held constant.
The income-consumption line shows how the consumer’s purchases
react to a change in money income with relative prices being held
constant. Increases in Hugh’s money income cause a parallel outward
shift of his budget line, moving his utility-maximizing point from A to
C. By joining all the utility-maximizing points, Hugh’s income-
consumption line is traced out.
The Consumer’s Response to a Change in
Price
We already know that a change in the relative prices of the two goods
changes the slope of the budget line. Given the price of clothing, for each
possible price of food there is a different utility-maximizing consumption
bundle for Hugh. If we connect these bundles, at a given money income,
we will trace out a price-consumption line, as shown in Figure 6A-6.