The Consumption Possibility Line represents the maximum amounts of consumption possible at varying levels of disposable income, or of Gross Domestic Product (GDP).
Engel's Law is an economic principle formulated by 19th-century economist Ernst Engel, stating that as a family's income increases, the proportion of income spent on food decreases, even if absolute spending on food rises.
Permanent income is a long-run measurement of average income, wherein temporary fluctuations in income do not significantly affect consumption patterns.
The substitution effect in economics refers to the change in consumption patterns due to a change in the relative prices of goods. When the price of a good decreases, consumers are more likely to substitute it for other goods, increasing their consumption of the now cheaper good. Conversely, when the price of a good increases, consumers will tend to switch to substitutes that have become relatively cheaper.
