Question

Using examples, does an increase in income affect a consumer’s budget line? Does it impact their total utility.

Answer 1

Suppse A is an individual consuming Apples and Oranges and Her income is 100. She gets utility by consuming only these two goods. Increase in income from 100 to say 200 would now open the gates of possibility of greater Consumption of both the goods as the budget of A is now double. This Increase in Income would lead to a shift outward of the Budget Line because now She can afford greater quantity of both the goods.

Now, if the price of Apples and Oranges remain unchanged, A's Consumption of both Apples and Oranges doubles as her income doubles. Increase in Consumption leads to an increase in A's Utility as her satisfaction Increases When she Consumers more of Apples and Oranges.