This presentation is for the understanding of the topic of consumer choices and their effect on income changes.

1. EFECTS OF
INCOME
CHANGES
ON
CONSUMER
CHOICES

2. INTRODUCTION
 Giventhe prices of different commodities,
consumers decide on the quantities of these
commoditiesaccording to their paying
capacity, tastes and preferences.
 Commodities are desired because of their utility
1. Utility is the attribute of the commodityto
satisfy or satiate a consumers wants.
2. Utility is the satisfaction, a consumer derives
from consumption of commodity.
 Utility is the satisfaction or pleasure derivedfrom
consumption of goods and services.
 Actual measurementof a utility is impossible,
but economists assume it can be measured by
a fictitiousunit called the utility.

3. THE BUDGET
CONSTRIANT
 A Budget constraint represents the
combinationof goods and services that a
consumer can purchase given current prices
and his income.
 People consume less than they
desire because their spending is constrained
or limited, by their income.
 The budget constraint shows the various
combinations of goods the consumer can
afford given his or her income and the
prices of the two goods.
 Any point on the budget constraint line
indicates the consumers combination or
tradeoff betweentwo goods.
 For example, if the consumer buys no pizzas,
he can afford 500 pints of Pepsi. If he buys no
Pepsi's he can afford 100 pizzas

4. How Changes in
Income Affect the
Consumer's Choices
 An increase in income shifts
the budget constraint
outward.
 The consumer is able to
choose a better
combination of goods on a
higher indifference curve.

5.  NORMAL VERSUS INFERIOR
GOODS
1. If a consumer buys more of a
good when his or her income
rises, the good is called a
normal good.
2. If a consumer buys less of a
good when his or her income
rises, the good is called an
inferior good.

6.  A fall in price of any good
rotates the budget constraint
outward and changes the
slope of the budget
constraint.

7. THANK YOU!!!