FIGURE 7 An Increase in Income When the consumer’s
income rises, the budget
constraint shifts outward.
If both goods are normal
goods, the consumer
responds to the increase
in income by buying more
of both of them. Here the
consumer buys more pizza
and more Pepsi.
Quantity of Pizza Quantity of Pepsi 0
New optimum
New budget constraint
I 1
I 2
2. . . . raising pizza consumption . . .
3. . . . and
raising Pepsi
consumption.
Initial
budget
constraint
Initial
optimum
1. An increase in income shifts the
budget constraint outward . . .
normal good a good for which an increase in income raises the quantity demanded inferior good a good for which an increase in income reduces the quantity demanded 65875_ch21_ptg01_433-460.indd 444
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CHAPTER 21 the theOrY OF CONSUMer ChOICe
445 to own cars or take taxis and less likely to ride the bus. Bus rides, therefore, are an
inferior good.
21-3c How Changes in Prices Affect the
