Income Consumption Curve Of An Inferior Commodity Is

It can be stated that an increase in income will lead a consumer to find its equilibrium on a higher indifference curve and vice versa product prices remaining the same.

Income consumption curve of an inferior commodity is. Negative sloped icc with inferior commodities. In case of inferior goods consumption of the commodity declines as income increases. Engel curve of an inferior good is drawn in figure 8 28 which is backward bending indicating fall in quantity purchased of the good as income increases. An extreme case of engel curve is a vertical straight line as drawn in fig.

An extreme case of an engel curve is a vertical straight line as drawn in fig. In fig icc 1 curve shows that commodity 2 is an inferior commodity. The income consumption curve in this case is negatively sloped and the income elasticity of demand will be negative. Hence the demand curve shifts to left.

In this case we obtain backward to the left income consumption curve or negative sloping icc. 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. This is termed as an income effect. If income effect for good x is negative income consumption curve will slope backward to the left as icc in fig 8 31.

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 curve turns downwards after point a. Thus the consumption of inferior goods will fall with a rise in income. Income consumption curve is a graph of combinations of two goods that maximize a consumer s satisfaction at different income levels.

If good y happens to be an inferior good and income consumption curve will bend towards x axis as shown by icc in fig. This curve turns backwards after point. It is plotted by connecting the points at which budget line corresponding to each income level touches the relevant highest indifference curve. In the first figure good x is an inferior good and good y is a normal good so with an increase in income the consumer buys fewer units of good x and more units of good y.

The locus of successive optimal equilibrium points is the income consumption curve henceforth icc. 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. Similarly icc 2 curve shows the inferior commodity 1. And for the inferior goods the demand curve shifts to left from dd to d 2 d 2 and q to q 2 because as the income increases the demand for inferior good decreases.

In case of inferior goods consumption of the commodity declines as income increases. It means that less of the commodity 2 will be purchased when the income of consumer increases.