Figure 5.1 Consumer’s Response to an Increase in Income When Both Goods Are Normal
Evan allocates his income between two normal goods, vacations and tickets to basketball games. His initial budget constraint BC1 is tangent to the utility curve U1 at the optimal consumption bundle A. An increase in Evan’s income is represented by the outward parallel shift of BC1 to BC2. Because the prices of the goods are unchanged, Evan can now afford to buy more vacations and basketball tickets, and his new utility-maximizing bundle is B, where utility curve U2 is tangent to BC2. At bundle B, Evan’s consumption of vacations and basketball tickets rises from Qv to Qv′ and Qb to Qb′, respectively.