Final answer:
The budget constraint for a student who didn't receive their allowance shifts inward, leading to reduced purchases of normal goods, as represented by a new constraint tangent to a lower indifference curve.
Step-by-step explanation:
When a college student who works part-time experiences a disruption in their expected monthly allowance from parents, it leads to a negative income effect that is visually represented by a shift of the budget constraint graph inward, toward the origin. This adjustment reflects a reduction in the student's total income, impacting their purchasing power.
The negative income effect is particularly relevant when considering normal goods, for which demand typically increases with rising income. In this scenario, the decrease in the student's total income results in less money available for purchases. Consequently, their consumption of normal goods decreases due to financial constraints.
Graphically, the new budget constraint, reflecting the student's diminished income, will be tangent to a lower indifference curve. Indifference curves represent different levels of utility or satisfaction, and the tangency of the budget constraint with a lower indifference curve illustrates that the student's available choices are now associated with reduced utility. This visual representation encapsulates the idea that, due to the negative income effect, the student faces a trade-off between goods and experiences a decrease in overall satisfaction with their consumption choices.
In summary, the negative income effect, depicted through the inward shift of the budget constraint and the tangent point with a lower indifference curve, illustrates the financial challenges and reduced utility experienced by the student when their expected monthly allowance is not received.