Income–consumption curve

Imagine you have a piggy bank where you keep all the coins you collect. You can choose to either spend or save your coins. Your spending depends on how much money you have in your piggy bank, and your saving depends on how much you want to keep for later.

Now, let’s say you start getting more coins every week. You might decide to save more each week or spend more. The income-consumption curve shows how much you choose to spend at different income levels.

The curve starts at the bottom left, where you have little to no money. At this point, you can’t spend much, so the curve is low. As you start earning more coins, you can spend more. Therefore, the curve starts going up.

However, there’s a limit to how much you can spend. Even if you have a lot of coins, you might want to save some for the future. So, as you earn more and more coins, the curve starts leveling off.

Ultimately, the income-consumption curve shows how your spending habits change as you earn more money. It’s like a map that shows how much money you want to spend at different income levels.