Price Consumption Curve

The price consumption curve is the curve that results from connecting tangents of indifference curves and budget lines (optimal bundles) when income and the price of good y are fixed, and the price of x changes.

When good x and good y are complements, as real income increases, you buy more of both goods, making the PCC positively sloping.

When good x and good y are substitutes, as real income increases, you buy more of one good (in this case good x) and less of the substitute (good y), making the PCC negatively sloping.

To derive demand from the PCC, take the P/Q data and plot it! Take the Q amounts straight from the PCC, and then estimate the slope of each budget line, and plot the absolute value of that estimate on the y-axis. A normal good will have a normal downward sloping demand curve. A superior good will have an upward sloping demand curve, meaning that as price increases, quantity demanded increases. This is known as a giffen good, which is an extreme type of inferior good, where the good may consume a large share of the consumer’s budget. The income effect offsets the substitution effect in this case.