ECN437NormalandInferiorGoods

# ECN437NormalandInferiorGoods - ECN437 'spreferences,as ,...

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ECN437 Normal and Inferior Goods The diagrams below show the link between a household's preferences, as  shown by its indifference curves, and its income elasticity of demand for the  X good. In each diagram, there are two budget constraints BC1 and BC2.   Under BC1, the household has \$180 to spend and under BC2 it has twice as  much: \$360.  Points E1 and E2 show the equilibrium consumption bundles  the household chooses under each of the budget constraints.  IC1 and IC2  are the corresponding indifference curves. Case 1: Unitary Income Elasticity Under one possible set of preferences, shown by IC1 and IC2 in the figure  below, the household's consumption of X is proportional to its income:  doubling income from \$180 to \$360 causes the household to double its  consumption of X from 5 to 10 units.  The dashed line is shown for  reference and indicates all of the points where consumption of X is  proportional to income (not just those for \$180 and \$360).

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## This note was uploaded on 04/03/2012 for the course ECN 437 taught by Professor Peterwilcoxen during the Spring '12 term at Syracuse.

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ECN437NormalandInferiorGoods - ECN437 'spreferences,as ,...

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