Explain With Diagram Income Consumption Curve

Income effect for a good is said to be positive when with the increase in income of the consumer his consumption of the good also increases.

Explain with diagram income consumption curve. This is the normal good case. We obtain the upward sloping price consumption curve for good x when the demand for good is. When the income effect of both. Income consumption curve may be defined as the locus of points representing successive consumer equilibriums as the income of the consumer increases keeping prices of the two goods constant.

It is plotted by connecting the points at which budget line corresponding to each income level touches the relevant highest indifference curve. Shifts in the consumption curve. If more goods are consumed then the new consumption curve c1 will be above the. Shifting of the consumption curve.

In indifference curve map income consumption curve is the locus of the equilibrium quantities consumed by an individual at different levels of his income. Suppose the initial budget line is given by ab and the initial equilibrium is e1 denoting. This can be explained with the help of the given diagram. Beyond this with the increase in income consumption increases but less than the increase in income and therefore consumption function curve cc lies below the 45 line oz beyond y 0.

The following diagram portrays a shift in the consumption curve. The locus of successive optimal equilibrium points is the income consumption curve henceforth icc. This shows good x to be an inferior good since beyond point q z income effect is negative for good x and as a result its quantity demanded falls as income increases in fig. Income consumption curve is a graph of combinations of two goods that maximize a consumer s satisfaction at different income levels.

An increase in the income with the prices of all goods fixed causes consumers to alter their choice of. 8 32 upward sloping price consumption curve is shown. An im portant point to be noted here is that beyond the level of income oy 0 the gap between con sumption and income is widening. Income effect can either be positive or negative.

If both x 1 and x 2 are normal goods the icc will be upward sloping i e will have a positive slope as shown in fig. 8 23 income consumption curve icc slopes downward to the right beyond point q 2 i e bends towards the x axis. Sometimes it is called the income offer curve or the income expansion path. 8 22 income consumption curve icc slope backward upward to the left i e bends toward the y axis.

The income consumption curve is the set of tangency points of indifference curves with the various budget constraint lines with prices held constant as income increases shifting the budget constraint out. Price consumption curve can have other shapes also. Thus the income consumption curve icc can be used to derive the relationship between the level of consumer s income and the quantity purchased of a commodity by him.