Slope Of Income Consumption Curve

Sometimes it is called the income offer curve or the income expansion path.

Slope of income consumption curve. An engel curve is a graph which shows the relationship between demand for a good on x axis and income level on y axis. Negative sloped income consumption curve. It is plotted by connecting the points at which budget line corresponding to each income level touches the relevant highest indifference curve. When good x and good y are substitutes as real income.

When consumption and savings priorities change. Income consumption curve is a graph of combinations of two goods that maximize a consumer s satisfaction at different income levels. When good x and good y are complements as real income increases you buy more of both goods making the pcc positively sloping. Also the price effect for x 2 is positive while it is negative for x 1.

Hence it is negatively sloped if any or both of the goods are inferior goods. The income consumption curve in this case is negatively sloped and the income elasticity of demand will be negative. Whenever its income level changes a family moves to a different point on its original consumption curve. The slope of the icc is negative in the case of inferior goods.

The price consumption curve is the curve that results from connecting tangents of indifference curves and budget lines optimal bundles when income and the price of good y are fixed and the price of x changes. An im portant point to be noted here is that beyond the level of income oy 0 the gap between con sumption and income is widening. If the slope of curve is positive the good is a normal good but if it is negative the good is an inferior good. 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.

A change in income can cause a shift in demand curve in case of a normal good an increase in income. Changes in income can be the result of many factors including. If income effect for good x is negative income consumption curve will slope backward to the left as icc in fig 8 31. Meaning of income consumption curve icc if the different equilibrium points of consumers resulted from the change in income are added then we will get a curve and called income consumption curve.

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. An increase or decrease in taxation. One of the determinants of demand is consumer income. Thus icc is the locus of consumer equilibrium points at various levels of consumer s income when the price of goods consumer s tastes and.

Shifting of the consumption curve. Beyond this with the increase in income consumption increases but less than the increase in income and therefore consumption function curve cc lies below the 45 line oz beyond y 0. It implies that the consumption of inferior goods declines with the increase in income and the inverse relation is defined. The locus of successive optimal equilibrium points is the income consumption curve henceforth icc.