Income Consumption Curve For Luxury Goods

Suppose real income is forecast to grow by 15 percent over the next five years.

Income consumption curve for luxury goods. Luxury goods is often used synonymously with superior goods. 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. It is plotted by connecting the points at which budget line corresponding to each income level touches the relevant highest indifference curve. Kurva yang menggambarkan kombinasi produk yang dikonsumsi yang memberikan kepuasan utilitas maksimum kepada konsumen pada berbagai tingkat harga menggambarkan bagaimana konsumen bereaksi terhadap perubahan harga suatu barang sedangkan harga barang lain dan pendapatan tidak berubah.

The figure first shows that the neutral good is measured on x axis or in our case good x is neutral good. The locus of successive optimal equilibrium points is the income consumption curve henceforth icc. It will be seen from fig. Income consumption curve is a graph of combinations of two goods that maximize a consumer s satisfaction at different income levels.

Sometimes it is called the income offer curve or the income expansion path. Conclusion luxury consumption goods have attracted individuals discussed in researches of. For each level of income m there will. When there is an increase in the income then the budget line of the.

An extreme case of engel curve is a vertical straight line as drawn in fig. In economics a luxury good or upmarket good is a good for which demand increases more than proportionally as income rises so that expenditures on the good become a greater proportion of overall spending. Ab is the initial budget line and the point e 1 is the equilibrium of the consumer on the indifference curve ic 1 at the equilibrium point the consumer has purchased x 1 and y 1 units of good x and y respectively. In case of inferior goods consumption of the commodity declines as income increases.

Mc 1 curve intersects with ah marginal income curve and it is the highest marginal cost curve. Also the price effect for x 2 is positive while it is negative for x 1. Luxury goods are in contrast to necessity goods where demand increases proportionally less than income. Income elasticities are useful in forecasting the demand for particular services and goods in a growing economy.

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. Engel curve of an inferior good is drawn in figure 8 35 which is backward bending indicating a fall in the quantity purchased of the good as income increases. 8 31 that the income consumption curve icc 2 is a linear curve passing through the origin which implies that the increases in the quantities purchased of both the goods are rising in proportion to the increase in income and therefore neither good is a luxury or a necessity.