Given the incomeconsumption curve shown to the right GoodX i

Given the income-consumption curve shown to the right. Good-X is | good and good Y is ICC A: L1 L2 L3 Good X

Solution

In the above curve we see that irrespective of income, prices the level of consumption of good X and good Y remains same, or we can say that consumers are purchasing as much good X as good Y, so this is the case of Perfect Compliments.

Here Points A, B, C are the utility maximization points with respect to L1, L2, L3 budget constraints. According to cobb - douglas preferences the demand function of good X and good Y are linear functions.