What is How Change In Income Affect The Consumer&Rsquo;S Choices?

Consumer choice refers to the preferences of a consumer reflected in demand curves. The relationship between personal choices, consumption and the demand curve is a complex and inter-related economic concept. This theory comes from the assumption of economists that anything a consumer buys will be consumed unless it is purchased for another productive activity.

This theory is therefore based on the desires of each consumer for goods and services.


 It is also based on the assumption that choices are based on the productivity of the person and their use of income for goods and services. Production and consumption are two different activities here because two different types of consumers are in consideration: The consumer who purchases goods for consumption and the producer who purchases for further production. Therefore, the motivations and different skills are involved. The models in the consumer theory are used to represent the observed trends in demand for a potential buyer in the event of limited individual optimization.


Consumers face tradeoffs in their purchasing decisions, as their incomes are limited and numerous options. To make decisions, consumers need to combine the constraints (they can afford) and preferences (what they like to eat).


Budgetary constraints imply that what a consumer can buy is limited by income. The slope of the budget measures the speed at which a consumer can trade one good for another, and the relative prices of goods. Budget constraints are determined by two consumer income and relative prices.




It must be understood that a consumer can have preferences and budget constraints. An optimum consumer choice is the highest point of the indifference curve that falls under a budget constraint. This generally occurs where the indifference curve is tangent to the budget constraint.


At the optimum time,

MRS = relative prices of goods from MRS = slope of the indifference curve, and the relative price = slope of budget constraint.


Marginal substitution is the rate at which consumers are willing to compromise, and is equal to the speed at which they can act. Income changes will undoubtedly affect the optimal choice. The budget constraint will move parallel to the original - on the rise with an increase in revenue and up to a drop in income. The new equilibrium to a higher income would be on a higher indifference curve, and when incomes are higher, could be more than two products intended for consumption. For normal goods, as income increases, the property would be preferable. For inferior goods as income increases, the less good to be elected.


Price Changes

A change in the price will change the slope of the curve. Lower prices not related to budget constraint and higher prices come with budgetary constraints. Therefore, a change in the price will alter the relative prices of products and their selling amount, ceteris paribus (income).



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