#cfa #cfa-level-1 #economics #has-images #microeconomics #reading-14-demand-and-supply-analysis-consumer-demand #subject-4-consumer-equilibrium-maximizing-utility-subject-to-the-budget-contraint
A consumer could consume at G, for example, but would be on a higher indifference curve at H. This means that to maximise utility the consumer would consume Q1 of product A and Q2 of product B.
The consumer is maximising utility where the budget line and indifference curve are tangent, i.e., MUB/MUA = PB/PA.
An Increase in Income
An increase in income shifts the budget line out parallel. The new combinations of products that maximise utility can be identified.
If this is a normal good, an increase in income increases the quantity demanded.
Inferior goods have a negative income elasticity of demand. Demand falls as income rises.
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