On a typical optimal choice diagram, with budget lines and indifference curves, the line that connects the consumer's optimal baskets as the consumer's income changes holding the prices of the goods constant is called the consumer's:
A)income-consumption curve.
B)price-consumption curve.
C)demand curve.
D)Engel curve.

Question

Quizplus · Accepted Answer

The line that connects the consumer's optimal baskets as the consumer's income changes holding the prices of the goods constant is known as the income-consumption curve. It shows the various combinations of goods the consumer can purchase at different levels of income while remaining indifferent between them. The income-consumption curve shows the relationship between a consumer's income and the optimal basket of goods they would purchase at each income level, holding the prices of the goods constant. This curve is important for understanding how changes in income affect a consumer's purchasing behavior and helps to identify the consumer's income elasticity of demand for each good. Therefore, option A is the correct answer.

On a Typical Optimal Choice Diagram, with Budget Lines and Indifference