Page 62 - DECO405_MANAGERIAL_ECONOMICS

Unit 4: Consumer Behaviour (Utility Analysis)

In case both commodities X and Y are normal goods the income consumption curve can take Notes
one of the shapes shown in Figure 4.9.
Figure 4.9

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 4.10. This implies that as the income of the consumer increases he
1
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 4.10 depicts the case when X is an inferior good and Y is a normal good.
2
Figure 4.10

4.5.4 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.

LOVELY PROFESSIONAL UNIVERSITY 57