Income Consumption Curve Of An Inferior Good

It shows that he considers hardcovers to be a normal good and paperbacks to be an inferior good.

Income consumption curve of an inferior good. As income decreases the demand for inferior goods say black and white tv rises from oq to oq 1 at the same price of op. This is termed as an income effect. 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. Ii decrease in income.

For each level of income m there will. 10 5 a u 1 5 20 10 b u 2 both hamburger and steak behave as a normal good between a and b. If good y happens to be an inferior good and income consumption curve will bend towards x axis as shown by icc in fig. At income level of 3 000 he reduces his consumption of paperbacks and increases consumption of hardcover.

The consumer maximizes his utility at points x and x and by joining these points the income consumption curve can be obtained. Income consumption curve and engel curve for perfect substitutes. 8 31 and 8 32 various possible shapes which income consumption curve can take are shown bereft of indifference curves and budget lines which yield them. 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.

Income consumption curve and engel curve for perfect complements. 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. The locus of successive optimal equilibrium points is the income consumption curve henceforth icc. 8 22 income consumption curve icc slope backward upward to the left i e bends toward the y axis.

It can be used to create an engel curve for michael. 8 23 income consumption curve icc slopes downward to the right beyond point q 2 i e bends towards the x axis. This implies that good x 1 is an inferior good as the demand for x 1 fell with an increase in the income of the consumer. 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 leads to a leftward shift in the demand curve of inferior good from dd to d 1 d 1. Sometimes it is called the income offer curve or the income expansion path. Income consumption curve and engel curve for normal goods. Income consumption curve and engel curve for inferior goods.

Thus the consumption of inferior goods will fall with a rise in income. It leads to a rightward shift in the demand curve of inferior good from dd to d 1 d 1.