University:
University of Houston
Course:
FINA 4330 | Corporate Finance
Academic year:

2023
Views:

363

Pages:

10
Author:

Scott Hodge

An Inferior Good Steak 15 (units per month) Both hamburger and steak behave as a normal good, between A and B... 10 B 5 U2 A U1 5 10 20 30 Hamburger (units per month) An Inferior Good Steak 15 (units per month) …but hamburger becomes and inferior good when the income consumption curve bends backward between B and C. C 10 U3 B 5 U2 A U1 5 10 20 30 Hamburger (units per month) An Inferior Good Steak 15 (units per month) Income-Consumption Curve C 10 U3 …but hamburger becomes and inferior good when the income consumption curve bends backward between B and C. B 5 B U2 A U1 5 10 20 30 Hamburger (units per month) Individual Demand  Engel Curves • Engel curves relate the quantity of good consumed to income. • If the good is a normal good, the Engel curve is upward sloping. • If the good is an inferior good, the Engel curve is downward sloping. Engel Curves Income ($ per month) 30 20 10 0 4 8 12 16 Food (units per month) Engel Curves Income ($ per month) 30 Engel curves slope upward for normal goods. 20 10 0 4 8 12 16 Food (units per month) Engel Curves Income ($ per month) 30 20 10 0 5 10 Hamburger (units per month) Engel Curves Income ($ per month) 30 Engel curves slope backward bending for inferior goods. 20 10 0 5 10 Hamburger (units per month) Engel Curves Income ($ per month) 30 Inferior Engel curves slope backward bending for inferior goods. 20 Normal 10 0 5 10 Hamburger (units per month) Example: Consume Expenditures in the United States Income Group (1993 $) Expenditure ($) on: Less than $10,000 1,00019,000 20,00029,000 30,000- 40,00039,000 49,000 50,000- 70,00069,000 and above Entertainment 520 894 1,185 1,602 2,018 2,565 4,007 Owned Dwellings 854 1,370 2,122 3,314 4,450 5,616 9,736 Rented Dwellings 1,642 2,128 1,978 1,884 1,802 1,514 748 Health Care 1,034 1,647 1,732 1,881 2,012 2,054 2,703 Food 2,461 3,198 3,971 4,706 5,556 6,273 8,137 867 1,068 1,394 1,778 2,215 2,316 3,668 Clothing

Individual and Market Demand 4

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