Answer to Question #100435 in Microeconomics for Razzaque

Question

suppose a consumer consumes two commodities(normal goods), can you reconcile the following statements in context of income and price effect. 1)Income consumption curve parallel to x-axis 2) Price consumption curve parallel to y-axis

Answer 1

1. The income effect is negative. Consumers income is decreased therefore decreasing consumption of goods. The price effect is negative to favour the consumption.
2. The income effect is positive. Consumers income is increased therefore increasing his consumption of goods. The price effect is expected to increase to favour the consumption