Dominick Salvatore Schaums Outline of Microeconomics, 4th edition Schaums Outline Series 2006

CHAP. 4] CONSUMER DEMAND THEORY 87
exchange if the MRS xy for A = MRS xy for B. However, we found in Problem 4.22 that MU x /
MU y ¼ MRS xy . Therefore, we can state that exchange can take place if the MU x /MU y
(¼MRS xy ) for A = MU x /MU y (¼MRS xy ) for B.
Fig. 4-23
THE INCOME-CONSUMPTION CURVE AND THE ENGEL CURVE
4.28 If the consumer’s tastes are given by indifference curves I, II, and III of Problem 4.11 (and they
remain unchanged during the period of the analysis), if the price of Y and the price of X remain
unchanged at $1 and $2, respectively, and if the consumer’s money income rises from $12 to
$16 and then to $20 per time period, derive the income-consumption curve and the Engel curve
for this consumer.
In panel A of Fig. 4-24, budget lines 1, 2, and 3 are parallel to each other because P x /P y remains unchanged (at
the value of 2). When the consumer’s income is $12 per time period, the consumer reaches equilibrium at point D on
indifference curve I by purchasing 3X and 6Y. At an income of $16, the consumer attains equilibrium at point E on
indifference curve II by buying 4X and 8Y. At an income of $20 per time period, the consumer reaches equilibrium
at point G on indifference curve III by purchasing 5.5X and 9Y. Line DEG joins points of consumer equilibrium at
different levels of income and is a portion of the income-consumption curve (ICC) for this consumer. (Even though
line DEG was also a portion of the consumer’s contract curve in Fig. 4-23 this was only a coincidence and need not
be so.)