A2.02.07: Illustrating YED

Question 1

What is the engel curve

Answer 1

Examines the relationship between income and demand for particular goods and services

Question 2

How would the engel curve look like when looking at demand for necessity goods (YED < 1)

Answer 2

y: axis - Q demanded for good x
x: axis - Income

Consumption grows slower than the rise in disposable incomes (Graph for substrate concentration in bio but doesn’t level off)

Question 3

How would the engel curve look like when looking at demand for luxury goods (YED>1)

Answer 3

y: axis - Q demanded for good x
x: axis - Income

Consumption grows faster than the rise in disposable incomes - there’s also a diminishing rate of increased consumption ( graph exponentially increases)

Question 4

How would the engel curve look like when looking at demand for inferior goods (YED<0)

Answer 4

y: axis - Q demanded for good x
x: axis - Income

Consumption decreases as disposable incomes rise ( graph is like a ppc but axis aren’t connected )

Question 5

How would the engel curve look like when looking at demand for goods with YED = 0

Answer 5

y: axis - Q demanded for good x
x: axis - Income

Straight line upwards from middle of x-axis