Horizontal Income Consumption Curve

Sometimes it is called the income offer curve or the income expansion path.

Horizontal income consumption curve. Income consumption curve traces out the income effect on the quantity consumed of the goods. Pictured below is the curve for a normal good. 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. Thus it shows the effect on demand for goods and services as a cause of change in income.

This is the normal good case. Also the price effect for x 2 is positive while it is negative for x 1. Income consumption curve is a graph of combinations of two goods that maximize a consumer s satisfaction at different income levels. The engel curve graphs the relationship between purchasing good x and.

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. If in a two good model the income consumption curve approaches the x axis as income increases then we can be sure that. Vandhana297 original whitetimberwolf svg version licensing. This file is licensed under the creative commons attribution share alike 3 0 unported license.

If in a model with only two goods where the quantity of x is plotted on the horizontal axis and the quantity of y on the vertical axis the price consumption curve generated by changing the price of x is a horizontal. If we add all the equilibrium points then we get the horizontal income consumption curve icc or icc will parallel to the x axis. Thus the price consumption curve which is a horizontal straight line will show unit elasticity of demand. When the income effect of both.

It is plotted by connecting the points at which budget line corresponding to each income level touches the relevant highest indifference curve. The income consumption curve in this case is negatively sloped and the income elasticity of demand will be negative. The locus of successive optimal equilibrium points is the income consumption curve henceforth icc. Income effect can either be positive or negative.

The income consumption curve is the set of optimal bundles when income changes while preferences and prices of goods are kept constant. 18 april 2013 21 39 41. In figure 3 the income consumption curve bends back on itself as with an increase income the consumer demands more of x 2 and less of x 1. Such curves are horizontal.

We thus conclude that when indifference map is such that it gives a price consumption curve of the shape of a horizontal straight line the price elasticity of demand for the good x is equal to unity. The income effect is the change in consumer s equilibrium due to change in income available for the consumer. The icc for an inferior good bends backwards.