How a Change in Income Affects Consumption Choices

Kimberly spends $1,000 a year on concert tickets at $50 and overnight getaways at $200, and her utility-maximizing choice on that budget constraint is M, three overnight stays and eight concerts. When her income rises the budget constraint shifts out in parallel, since neither price has changed.

The dashed lines through M divide the new budget constraint into three groups. Choices above and to the right, like N, have more of both goods, which is what happens when both are normal goods. A choice to the left of the vertical dashed line, like P, means overnight stays are an inferior good: more income, fewer getaways. A choice below the horizontal dashed line, like Q, means concert tickets are the inferior good. The slider sets the new income.