Let us make an in-depth study of the effect of income change and price change on consumption curve.

### Effect of Income Change:

Suppose when the consumer’s income is M, the price line is AB. The equilibrium position is R where AB touches indifference curve IC1.

If the consumer’s income increases, he will be able to buy more X and Y. The Price Line will move outwards parallel to itself, be­coming (say) CD. The equilibrium position of the consumer will now be S, where CD touches another indifference curve IC3. If the income increases again, the Price Line will move further outwards. If it is now GH, the consumer will be at equilibrium at V.

If we join R, S, V and similar other points of tangency we get a line like ICC. This line shows the effects of income changes on consumption. It is called the Income – Consumption Curve or the Expenditure- Consumption Curve. When income increases the consumer moves upwards along ICC; when income decreases he moves downwards along ICC.

The shape of ICC depends on the shape of the indifference curves. In case of inferior goods it will bend away from the axis which represents such goods, showing that, as income increases, the consumption of such a good decreases.

### Effect of Price Change:

Suppose AB is the price line when the price of X is such that the consumer can buy OB with his income. The consumer is at equili­brium at R. Suppose now the price of X falls. The consumer can now buy more X. So the Price Line becomes (say) AC.

The equili­brium position is now S, where AC touches indifference curve I1. If the price of X falls further, the consumer will be at equilibrium at a point like V. A line joining R, S, V and similar other points shows the effects of price changes on consumption. It is called the Price Consumption Curve.

When the price of both the commodities change, the positions of both A and B change. The point of tangency between the new price line and an indifference curve shows the new equili­brium position. So all prices change, and their effect on the consumer’s equilibrium position, can be diagrammatically represented on the Indifference Map of the consumer.