Question

with references to the indifference theory with good Y on the vertical axis and good X on the horizontal axis graphically illustrate a change in consumer equilibrium due to a change in income .suppose that income increase

Answer 1

An indifference curve depicts a combination of two goods that give a consumer same satisfaction and utility thereby making the consumer indifferent.

In the above graph, IC1, IC2 and IC3 are indifferent curves while BL1,BL2 and BL3 are budget lines. Points A, B and C are consumer equilibrium points.

When income of the consumer changes,the consumer equilibrium points changes too. Equilibrium point A show that the consumer is getting a lower satisfaction than points B and C. When consumer income increases, the consumer Equilibrium points moves from point A to B and from B to C. When we join the equilibrium points we get the income consumption curve which shows different consumer equilibrium combination of two goods at various level of income with various indifferent curves.