![]() ![]() Now suppose that income of the consumer increases. With given prices and a given money income as indicated by the budget line P 1L 1, the consumer is initially in equilibrium at Q 1 on the indifference curve IC 1 and is having OM 1 of X and ON, of Y. Thus, the income effect means the change in consumer’s purchases of the goods as a result of a change in his money income. Income effect shows this reaction of the consumer. We are now interested in knowing how the consumer will react in regard to his purchases of the goods when his money income changes, prices of the goods and his tastes and preferences remaining unÂchanged. ![]() With a given money income to spend on goods, given prices of the two goods and given an indifference map (which portrays given tastes and preferences of the consumers), the consumer will be in equilibrium at, point in an indifference map. In this article we will discuss about the properties of an income consumption curve in different situations, with the help of suitable diagrams.
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