How to read this
Fix the prices and raise income: the budget line shifts out, and the best bundle moves along the income expansion path (orange). Demand for a good as a function of income is its Engel curve.
- Press ▶ Raise y smoothly: the bundle traces the path, and the Engel curves on the right grow with it.
- A: the path is a ray. B: good 2 is a luxury. C: good 1 is inferior.
- D: the path curves, and the income elasticities change with income.
- E: good 1 is normal at low incomes and inferior at high ones; its Engel curve rises, then falls.