Many goods are normal to at a consumer's low income levels and inferior at high income...

Many goods are normal to at a consumer's low income levels and inferior at high income levels. What would the income-consumption curve and the Engel curve look like?

Expert Solution

Answer: For the goods which are normal at low income and becomes inferior at high income levels, the consumption of such goods decreases as the consumer income increases. When the income increases people tend to purchase items which are normal at some extent but when the income increases significantly, the purchase of inferior goods fall sharply, and consumer moves towards more superior good.

Income Consumption Curve:

The ICC will look like below for inferior goods: In this graph below, Good X is considered as inferior good.

Engel Curve:

Engel Curve is shown below for inferior good X. With the increasing income it shows how the quantity consumed of a normal good would change, and after significant hike in income the good will be out of need or may be substituted by luxury goods.

Rahul Sunny answered 3 years ago

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