![]() Since the same amount each good will be consumed, the ICC will be a straight line through the origin with constant slope, as depicted by Fig. 7.6 shows the nature of a consumer’s demand for perfect complements. Otherwise the consumer will buy the one whose price is lower than that of the other.įig. The consumer will buy both of them if their prices are the same, i.e., p 1 = p 2. Here the utility function u = log x 1 + log x 2 indicates that the two commodities are perfect substitutes of each other. Given the commodity prices show that the optimum allocation of his given budget requires that he spends half on commodity x 1 and remaining half on x 2. Since m = p 1x 1 the slope of the Engel curve is m/x 1 = p 1.Ĭonsider an individual when the utility function u (x 1, x 2) = log x 1 + log x 2. 7.5(b) shows that the Engel curve will be a straight line and the quantity of x 1 demanded = m/p 1. In this case the ICC will coincide with the horizontal axes as shown in Fig. So he will buy more x 1 if his income increases. ![]() ![]() If p 1 < p 2, the consumer will consume x 1. ![]() Let us suppose x 1 and x 2 are perfect substitutes as shown in Fig. The following are the interesting case examples: ![]()
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