NEVER CHANGING FACT-Price rises and Income remains stable

RELATION BETWEEN INCOME AND PRICE FLUCTUATION

The preference & choices of a consumer depends on his or her income. The ability of the consumer to go for high level of satisfaction based on his income and budget line gives us (from the point of producers) an idea to know his/her highest or optimum levels of satisfaction through the indifference curve.

Whenever there is a rise in price of goods or say a particular product, the consumption may be reduced or a substitute product will satisfy the need in its place.

Like for instance, when the prices of wooden furniture went up, I gave up my thought of buying a study table. However, when the prices of onions went up, there was a decrease in the consumption slightly. Here in case of onions, it is an irreplaceable product and no close substitute is available in its place. In these scenario, I or we have to go for the vegetable as it’s a must for all kitchens. This shows the relation between price increase & budget line constraint.

If suppose here my income level goes high, I will try to compensate my need and satisfaction level as earlier, else my consumption increases which in turn takes my indifference curve higher.