Real Income Consumption Curve

In economics and particularly in consumer choice theory the income consumption curve is a curve in a graph in which the quantities of two goods are plotted on the two axes.

Real income consumption curve. The locus of successive optimal equilibrium points is the income consumption curve henceforth icc. The income effect in economics can be defined as the change in consumption resulting from a change in real income. If now various points q 1 q 2 q 3 and q 4 showing consumer s equilibrium at various levels of income are joined together we will get what is called income consumption curve icc. Sometimes it is called the income offer curve or the income expansion path.

Income consumption curve traces out the income effect on the quantity consumed of the 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. In economics and particularly in consumer choice theory the income consumption curve is a curve in a graph in which the quantities of two goods are plotted on the two axes. The curve is the locus of points showing the consumption bundles chosen at each of various levels of income.

The income effect in economics can be defined as the change in consumption resulting from a change in real income. Simply put the pure income effect of a price change is the extent to which a change in real income affects the quantity demanded of bread with relative price held constant. Mathematically the lm curve is defined by the equation where the supply of money is represented as the real amount m p as opposed to the nominal amount m with p representing the price level and l being the real demand for money which is some function of the interest rate and the level of real income.