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Unit-4: Ordinal Utility Theory: Indifference Curve Approach

The demand of apples on point E and E of this price consumption curve is shown below in table 7. Notes
1

Table 7: Demand Schedule
Price in Demand of Apples

2 3
1 7

In Fig. 4.34 (B), the demand curve is drawn by above data. In other words, by exchanging the relation of
price-quantity from Panel (A) which is shown by point E and E to Panel (B), we get the points A and B
1
and if we add these points then we get the downward curve DD. This proves the anti-relation between
price and demand and proves the theory of demand.

4.31 Difference between Demand Curve and Price Consumption Curve

However, we get similar information from Demand Curve and PCC but there are some differences of
the graphs of these curves:
1. Generally, while making conventional demand curve, we put quantity of product on axis OX and
price on axis OY. But while making PCC we take different products on both axes or represent a
product’s quantity on axis OX and unit of price or income of consumer on axis OY.
2. For general conventional demand curve, income assumed as fixed and the price of product is shown
on axis OY. But in PCC we do not display price but the slope of price line represents the price. The
image related to demand curve gives idea about the price of product and demanded quantity while
by PCC we can’t get the picture of relation between price of product and demanded product. To get
clarity, the conventional Demand Curve is better than PCC.
3. By using conventional demand curve we cannot separate income effect and substitution effect onto
price effect while we can clarify both by using PCC. Thus PCC is superior than conventional demand
curve.

4.32 Income Consumption Curve

As shown in given figure, the changes in income are shown by Income Consumption Curve. The
Income Consumption Curve is that curve which represents the equilibrium quantities of goods X
and Y that would be purchased at various levels of income while prices remain constant. In short,
Income Consumption Curve represents the changes in income by equilibrium of consumer.
In the words of Ferguson, “The Income Consumption Curve is the curve which shows the points of
equilibrium resulting from the various levels of money income and constant prices.”

Explanation

The Income Consumption Curve can be described by Fig. 4.35. In this figure apples are on axis OX while
oranges are on axis OY. The income of consumer is OA in terms of oranges while in terms of apples it
is OB. AB represents the budget line. The consumer is in equilibrium on point E where the indifference

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