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Budget Constraints: Effect on Goods

Author: Kate Eskra

Budget Constraints: Change in Income

Source: Image of Budget Constraint Graph created by Kate Eskra, Image of Income Change on Budget Constraint created by Kate Eskra

Video Transcript
Terms to Know
Budget Constraint

The graphical depiction of consumer income relative to the price of goods available. Where the budget constraint touches the highest indifference curve available, the consumer is defined to be optimizing consumption.

Inferior Goods

Goods for which demand decreases as income increases.

Normal Goods

Goods for which demand increases as income increases.

Optimal Choice

Goods and services purchased by a consumer that provides the highest level of utility possible.