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The slope of ICC, in case of superior products, depends upon the income elasticity of the two products- the upward sloping ICC will be closer to the axis where the more income elastic product is depicted. In Figure-3.20, the product X is depicted on X-axis and product Y on Y-axis.
Based on it, following observations can be made:
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i. The ICC will be closer to X-axis if the income elasticity of X is more than that of the product Y; and
ii. The ICC will be closer to Y-axis if the income elasticity of Y is more than that of product X.
iii. If both the products are equally income elastic, then the ICC will be placed in the middle.
Shapes of the ICC and Nature of Products:
i. The ICC can be an upward looking or positively sloped curve if both the products are superior. But the slope will depend on the nature of products. This originates from the fact that the luxury goods are more responsive to an income change (income elastic), the comforts are less responsive and the necessity items are the least. Such three shapes are shown in Figure-3.21.
a. When the one product is luxury and the other is a necessity, then the positively sloped ICC will tilt towards the axis on which the luxury product is taken. As such, when X is taken as a luxury product and Y as a necessity, than the ICC tilts towards X-axis. Similarly, when Y is taken as a luxury product and X as a necessity, than the ICC tilts towards Y-axis.
b. If both the products are comforts, the ICC will not tilt towards any axis but will settle broadly in the middle of both the axes.
ii. An ICC can also become a straight line parallel to X-axis if Y is a necessity goods [Figure-3.22(a)] or parallel to Y-axis if X is a necessity goods [Figure – 3.22(b)], Such a shape will imply that consumption of a necessity goods will not change at all with an increase in income.
iii. If one of the two products is inferior and the other one is superior, than the ICC will tilt towards the axis on which superior product is taken. As such, in Figure-3.22(c), the ICC has tilted towards Y-axis which indicates Y as a superior product and in Figure-3.22(d), it has tilted towards X-axis which represents a superior product X.
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iv. It may be further highlighted that even the inferior products are found to be superior, up to a certain income level and become inferior only when that income level is crossed that level. As such, the ICC is drawn as an upward sloping curve initially, both in Figure-3.22 (c) and Figure-3.22(d), up to point R.
Thus, looking at the ICC, considerable amount of information can be generated regarding the kinds of products.
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