Page 83 - DECO401_MICROECONOMIC_THEORY_ENGLISH

Microeconomic Theory

Notes curve IC touches the budget line AB. When the income of consumer rises then the budget line goes on
CD and the equilibrium point also changes from E to E . Now at new equilibrium point E , the budget
1
1
line CD and indifference curve IC touch each other. If income again rises then the budget line goes from
1
CD to LM. And new indifference curve now is IC . E is new contact point of IC and LM and it is new
2 2 2
equilibrium point too. E, E and E are the points which conjugate the Income Consumption Curve line
1
2
and create Income Consumption Curve. This curve presents the quantities of apples and oranges on the
various income levels.
Fig. 4.35

Y

L ICC
C
Oranges A

E 1 E 2 IC 2
E IC 1
IC
O X
BD M
Apples

4.33 Slope of the Curve

The slope of the Income Consumption Curve is positive for general products and negative for inferior
products. Both the slopes of Income Consumption Curve are represented by the figures.
1. Positive Slope or Income Consumption Curve in Case of Normal Goods: The Income Consumption
Curve is positive for the general products. In other words, if income raises then the consumption
of both the products (X and Y) increases and vice versa. In Fig. 4.36, the initial equilibrium point is
E on budget line AB. When this income increases then the equilibrium points would move right-
side to E on budget line CD. If income decreases then equilibrium point will move left-side to E
1 2
on budget line EF. The locus of all these equilibrium points is called Income Consumption Curve
(ICC). In other words, the curve which comes by conjugating all equilibrium points E, E and E is
2
1
Income Consumption Curve. This curve starts from original point O. It means when the income
of consumer is zero then the consumption of apples and oranges is also zero. Figure 4.36 shows
that the sloping of Income Consumption Curve is from left to right for the normal goods. It means
the consumption would be increased if income increases. The state of Income Consumption Curve
depends upon the average expenditure of product X or Y.
The average expenditure of both the products would increase simultaneously and it is shown
in Fig. 4.37. From ICC , we can know that the average expenditure would be high for product
1
X and thus we can know from ICC curve that the average expenditure would be high for
2
product Y.

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