Microeconomics: Theory and Applications with Calculus, 4e

4.2 Effects of an Increase in Income

It is better to be nouveau riche than never to have been riche at all.

An increase in an individual’s income, holding tastes and prices constant, causes a shift of the demand curve. An increase in income causes a parallel shift of the budget constraint away from the origin, prompting a consumer to choose a new optimal bundle with more of some or all of the goods.

How Income Changes Shift Demand Curves

We illustrate the relationship between the quantity demanded and income by examining how Mimi’s behavior changes when her income rises while the prices of beer and wine remain constant. Figure 4.3 shows three ways of looking at the relationship between income and the quantity demanded. All three diagrams have ...