Microeconomics › Section F · Consumer choices › Topic F.2
How income and price changes shift choices
When income rises or a price falls, the consumer's whole map changes: the budget line moves, the old best point drifts, and the new one can be found at a touch. This topic builds the full graphical model - budget lines, indifference curves - and then uses it to split every price change into two forces.
In this topic
- Two tools: budgets and preferences
- Indifference curves
- The marginal rate of substitution
- The optimal choice: a tangency
- Worked example: mapping a hobby budget
- Income changes: parallel shifts
- Price changes: rotations and two forces
- Worked example: splitting a fare cut
- Giffen goods: the rare exception
- From choices to demand curves
- Common mistakes to avoid
- Key takeaways
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