Determine the slopes of the Engel curves for goods x and y when the income consumption...

Determine the slopes of the Engel curves for goods x and y when the income consumption curve slopes upward, downward, is vertical, and is horizontal.

Expert Solution

Now when good X and Y are both normal goods then, as consumer's income increases, consumption of both X and Y increases and we get a positively sloped or upward sloping income consumption curve. Now here as X and Y are both normal goods, the Engel curves for X and Y which shows the relationship between quantity demanded of goods X and Y respectively and consumer's income, will slope upward as for normal goods as the income increases, consumption of that good also increases. Hence the Engel curves for good X and Y will be upward sloping.

Now when good X is an inferior good and good Y is a normal good, then as consumer's income increases, consumption of good X falls and consumption of good Y increases. Here we get negatively sloped or downward sloping income consumption curve. Here because X is an inferior good, then as consumer's income increases, consumption of good X will fall and the Engel curve for good X will be downward sloping, whereas as good Y is a normal good, the Engel curve for good Y will be upward sloping. Similarly, when good Y is an inferior good and good X is a normal good, then the Engel curve for good Y will be downward sloping and the Engel curve for good X will be upward sloping.

Now for vertical income consumption curve, when we plot good X along the horizontal axis and god Y along the vertical axis, then as income increases, consumption of good X remains unchanged and consumption of good Y increases. Here good X is unresponsive to change in the level of income, so the Engel curve for good X will be parallel to the vertical axis and it will have a slope of infinity. Here as good Y is a normal good, the Engel curve for good Y will be upward sloping.

Now for horizontal income consumption curve, when we plot good X along the horizontal axis and god Y along the vertical axis, then as income increases, consumption of good X increases and consumption of good Y remains unchanged. Here good Y is unresponsive to change in the level of income, so the Engel curve for good Y will be parallel to the horizontal axis and it will have a slope of 0. Here as good X is a normal good, the Engel curve for good X will be upward sloping.

Rahul Sunny answered 2 years ago

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