Finally, we look at what happens to consumption when income falls. Again we can't predict precisely, without more information than we have about her preferences, but if we know that both goods are normal we can show the range of possible consumption bundles.

    As our consumer's income falls consumption of both goods must diminish if both goods are normal, meaning that consumption must lie in the yellow region. As her income falls from the blue budget to the brown budget, her new consumption bundle must lie in the green region on the lower constraint.

Copyright © 1995-2004 OnLineTexts.com, Inc. - All Rights Reserved