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 CONSOMERS COUILIBRIUM TTH THE fHELP OFNDFfER

vevE AMd BUDGET LINEORDNAL APRGAeJ

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 50. The Income Effect
The equilibrium of the consumer is obtained on the basis of the
assumption that the income level of the consumer remains constant
and prices of the two commodities also remain constant. When the
income of the
Consumer changes
or when any price
A level changes the
equilibrium position
A will be affected. We
I.C.C
know that as income
increasees, prices
A remaining the same,
N the budget line shifts
Uz parallely to the right.
N
We shall get a new
Uo budget line and a
new point of
O MM B B B tangencyy between
the budget line and
Fig. 5.15 indifference
the
curve. The locus of successive points of tangency between parallel
budget lines and indifferencecurvesis called theincome consumption
curve. Thus the income consumption curve shows the effect of change
8