Illustrate the income changes and consumption choice.

Income Changes and Consumption Choice:

This is of interest to see at how the consumer’s demand changes when we hold prices fixed and permit income to vary; the resulting locus of utility-maximizing bundles is termed as the income expansion path. By the income expansion path, derive a function which relates income to the demand for all commodities (at constant prices).

Such functions are termed as Engel curves. Two possibilities are there: (a) when income increases, then the optimal consumption of a good increases. This good is termed as a normal good. (b) When income increases, in that case the optimal consumption of a good decreases. That good is termed as interior good.