The last two types of income consumption curves relate to inferior goods.
He continues to purchase OA of it even at higher income levels. He has no inclination to increase its purchases despite further increases in his income. Here Y is a necessity.įigure 12.15 (B) shows a vertical income consumption curve when the consumption of good X reaches the saturation level R on the part of the consumer.
It often happens in the case of a necessity (like salt) whose demand remains the same even when the income of the consumer continues to increase further. He buys the same amount of Y (RA) as before despite further increases in his income. Beyond this point it becomes horizontal which signifies that the consumer has reached the saturation point with regard to the consumption of good Y.
In Figure 12.15 (A) the ICC curve slopes upwards with the increase in income upto the equilibrium point R at the budget line P 1Q 1 on the indifference cure I 2. The second type of ICC curve may have a positive slope in the beginning but become and stay horizontal beyond a certain point when the income of the consumer continues to increase. Here the income effect is also positive and both X and Y are normal goods. The first type is explained above in Figure 12.14 where the ICC curve has a positive slope throughout its range. We can have five types of income consumption curves. Usually, the income consumption curve slopes upwards to the right as shown in Figure 12.14.īut an income-consumption curve can have any shape provided it does not intersect an indifference curve more than once. As his income increases, he buys SB of Y and OB of X at the equilibrium point S on P 1, Q 1, budget line and still more of the two goods TC of Y and ОС of X, on the budget line P 2Q 2. In Figure 12.14 he buys RA of Y and OA of X at the equilibrium point R on the budget line PQ. Normally, when the income of the consumer increases, he purchases larger quantities of two goods.
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