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Table 9.1 The combinations of X and Y that a consumer can afford to buy with an income of 100 money units.

Quantity of X (price = 20)	Quantity of Y (price = 10)
0 1 2 3 4 5	10 8 6 4 2 0

Figure 9.2 Consumer equilibrium in point A

Figure 9.2 shows the indifference map and the budget line on the same graph. Suppose our consumer spends all his income on X and Y, he will choose the combinations represented by point A. This is the point where the budget line is tangent to an indifference curve – I₂ is the highest point that can be reached. This point is called ‘consumer equilibrium’ point, and the consumer is said to be maximizing his utility subject to his budget constraint.

Effect of an income change

If the consumer’s income increases, his budget line will shift upwards remaining parallel to the original one. A new consumer equilibrium point will be found on an indifference curve I₃ (Figure 9.2). Similarly, if his income falls, his budget line will shift downwards remaining parallel, and this time an equilibrium point will appear on an indifference curve I₁. The quantity of X and Y that our consumer will afford to buy will respectively increase or decrease.

Effect of a price change

Suppose that the price of X falls, ceteris paribus. Table 9.2 shows the combinations that the consumer can just afford to buy when his income is 100 money units, the price of Y is 10 money units and the price of X has fallen to 10.