Question

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

Answer 1

An increase in income shifts the budget line outward from the origin, in this case from BC1 to BC2.

Which indicates that the consumers are now able to purchase more goods and services if the prices of the goods are kept same. Budget line shifts outward because of this reason.

As the budget line shifts outward the consumers are able to to increase their consumption and hence they are able to to operate at a higher indifference curve, in this case from ic1 to IC 2.