Since the budget line is based on consumer income and prices of commodities, hence shifts in the budget line may occur due to change in income or change in price or both so there are two types of effects or shits in the budget line:

- Effect of change in income
- Effect of change in price

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**Effect of Change in Income **

Effect of change in income is shown in the following graph

L_{1}, M_{1} is the original budget line where Y intercept is M_{1}/P_{y} and X intercept is M_{1}/P_{x} slope of the budget line is –P_{x}/P_{y}.

Now if prices of x and y remain unchanged and income increases from M_{1} to M_{2} the budget line shifts upward from L_{1}M_{1} to L_{2}M_{2}. It is parallel to the original budget line. Its slope is the same. Now the consumer can purchase more of both commodities.

But if income decreases from M_{1} to M_{0} and prices remain the same the budget line shifts downward from L_{1}M_{1} to L_{0}M_{0}. It is also parallel to original line with the same slope. Now the consumer can purchase less of both commodities.

### Effect of Change in Income

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**Effect of Change in Prices**

Effect of change in prices can be observed in the following diagram

L1M1 is the original budget line with the given income M_{1} and prices of goods P_{x1} and P_{y}. Its slope is “-P_{x1}/P_{y}”. If the consumer spends the whole on the purchase of x only he can buy OM_{1} units of X. Now let price of x fells from P_{x1} to P_{x2}. Price of commodity Y and consumer income M_{1} remain unchanged. If the consumer spends the entire budget M1 on the purchase of X, now he can buy OM2 unit of X. Therefore, the budget line rotates from L_{1}M_{1} to L_{1}M_{2}. Slope of this newline is –P_{x2}/Py (It is flatter than the previous one). With the fall in P_{x} now the consumer can purchase more of X and the some quantity of Y. Similarly with the rise in P_{x} the budget line may rotates from L_{1}M_{1} to L_{1}M_{O}.