Answer to Question #98621 in Microeconomics for huzefa

Question

Draw two diagrams showing that the Income-consumption (ICC) curve can be horizontal or downward sloping. Explain what is the difference between the two diagrams.

Answer 1

Income Consumption Curve Diagram 1

Income Consumption Curve Horizontal

The first graph is the income consumption curve which is down sloping and it implies that any increase in income with the prices of all commodities are fixed will cause the consumer to change his choices of the market. In the second horizontal curve, this implies that when the price of the commodity X declines, the quantity purchased increases but no changes in the commodity Y