Economics • Economic BasicsMedium
In the theory of consumer choice, what does the 'Income-Consumption Curve' (ICC) trace out?
A. The combinations of two goods that a consumer buys as their income changes, keeping relative prices constant✓ Correct Answer
B. The responsiveness of consumer savings to fluctuating nominal wage rates over a business cycle
C. The alternative bundles of goods that yield decreasing levels of satisfaction as consumer income falls
D. The trade-off between labor supply and leisure time across varying household tax brackets
💡 Solution & Explanation
The income-consumption curve maps the optimal bundles of two goods that a consumer selects as their income changes, keeping relative prices constant. By connecting these tangency points between indifference curves and budget lines, economists can derive individual Engel curves. This graphical tool illustrates whether goods are classified as normal or inferior based on consumption shifts.
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