Page 82 - DECO101_MICRO_ECONOMICS_ENGLISH

Unit 6: Consumer Behaviour: Ordinal Approach

In case both commodities X and Y are normal goods the income consumption curve can take one Notes
of the shapes shown in Figure 6.7.
Figure 6.7

ICC 1

ICC 2
Commodity Y (units)

0 ICC 3
Commodity X (units)

In case X is a normal good but Y an inferior good the income consumption curve would take the
shape depicted as ICC in Figure 6.8. This implies that as the income of the consumer increases
1
he buys more of both X and Y up to a point and beyond that he buys more of X and less of Y. The
curve ICC in Figure 6.8 depicts the case when X is an inferior good and Y is a normal good.
2
Figure 6.8

ICC : Y Normal
2
X Inferior
(units)

Commodity Y

ICC : Y Normal
1
X Inferior
0
Commodity X (units)

Price of Related Goods

Almost all the goods that a consumer purchases in a market are “related goods” either by way
of complementarity or substitutability. X and Y are compliments if the rise in demand of X
increases the demand for Y, e.g., pen and ink, bread and butter, etc. X and Y are substitutes, if
the rise in demand for x reduces the demand for Y, e.g., tea and coffee.

Did u know? Price Effect (KM) = Substitution Effect (KL) + Income Effect (LM).
The price effect can be broken up into two parts: income effect and substitution effect.
Income effect occurs due to increase (decrease) in real income resulting from a decrease
(increase) in the price of a commodity. Substitution effect occurs due to the consumer’s
inherent tendency to substitute cheaper goods for relatively expensive ones.

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