Price-consumption curve

economic-dictionary

The price-consumption curve is the curve that represents the set of the infinite equilibrium combinations that the consumer obtains by modifying the price of one good and keeping income, tastes and the price of the other good constant.

For example, if we start from an equilibrium situation of consumer E1, given prices Px and Py. When the price of good X falls, with the same budget we can buy more of X (since the rent remains constant). That is, the budget space is expanded by pivoting the balance line to the right.

The consumer will now have more combinations of goods X and Y that he can acquire, so that he will be able to reach a new equilibrium point, which will be the one where the indifference curve is tangent (E2), and this would happen successively when the prices of goods. If, on the contrary, the price of X increases, the balance line will decrease and the consumer equilibrium (E3) will be located lower in the price-consumption curve.

Price-consumption curve graph

If we join all the equilibrium points obtained, we obtain the price-consumption curve:

Demand curve Isoquant curve Indifference curves

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