Here, AB is the original budget line and IC is the original Indifference curve. In fig, X-axis shows the quantity of Maggi demanded whereas Y-axis shows the quantity of the other commodity (Noodles) demanded. Graphical Representation: Derivation of Demand curve from PCC – Normal Goods
Thus, for normal goods, the demand increases with a fall in price and decreases with a rise in price. It defines the negative relationship between price and quantity demanded of a commodity. In the case of normal goods, the demand curve so made through the Price Consumption Curve is downward sloping. Price of other commodities remains the same.There is no change in the tastes and preferences of the consumer.The money income to be spent on combinations of commodities is constant.Therefore, the drawing of the demand curve from PCC is complicated when compared to the demand curve drawn from the demand schedule. The derivation of the demand curve from the price consumption curve includes the substitution as well as the income effect. As both these curves represent the relationship between the price of the commodity and its quantity demanded. We can derive the demand curve from the price consumption curve, given the income level of consumer and indifference map. Derivation of Demand Curve from Price Consumption Curve: Hence, the line joining the equilibrium points on different budget lines and indifference curves due to change in price is shown by Price Consumption Curve. In other words, with a fall in the price of a commodity, the consumer’s equilibrium lies at a higher indifference curve and lie on a lower indifference curve with a rise in price. When the price of commodity changes, it affects the consumer by making him worse or better than before depending upon the rise or fall in price.
“The price consumption curve is a locus of equilibrium points relating the quantity of X purchased in relation to its price, money income, and all other prices remaining constant.” Price Consumption Curve is the curve which shows the optimal combinations of two commodities that consumer will buy at different prices of one commodity while holding income and price of other constant. It also refers to the graphical representation of the relationship between price and quantity demanded. Demand curve indicates the different quantities of the commodity purchased by the consumer at different prices.
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