Income Consumption Curve And Income Elasticities

4 2 income consumption curve and income elasticities the shape of the income income consumption curve and income elasticities the shape of the income.

Income consumption curve and income elasticities. This preview shows page 11 14 out of 14 pages. Let s consider that both of the goods x and y are normal good and see the effect of change in income on the consumption decision with the help of the following diagram. The income consumption curve in this case is negatively sloped and the income elasticity of demand will be negative. 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.

This is the normal good case. Income effect and income consumption curve normal good case. When the income effect of both. Income effect can either be positive or negative.

Income and price elasticities are very useful for policy analysis and for predictions of changes in food consumption over time sadoulet and de janvry 1995. 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. With suitable data one can also go beyond food quantities and calculate income and price elasticities of calorie and nutrient consumption.