The Effect Of Changing Income On Consumption An Engle Curve Plot Essay

The Effect Of Changing Income On Consumption An Engle Curve Plot Essay

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A normal good is classified as a good or service that demand rises as the consumers incomes rise (Hirschey, 2009 p.165). Well, an inferior good is classified as a good or service that demand decreases when the consumers income rises. (Hirschey, 2009 p.165). Most products and industries can classify their goods or services as in one of these categories. For example, luxury vehicles can be classified as normal goods. As incomes increase the demand for luxury vehicles increase. To estimate the effects of changing income on consumption an engle curve plot can be used n(Hirschey, 2009 p.165). An engle curve plot with a positive slope represent a normal good. Well, a negative slope represents an inferior good.
The income effect occurs when consumption increases after a price cut or a decrease after a price increase (Hirschey, 2009 p.160). This can also be seen in luxury vehicles. A price cut or promotional offer can increase the sales. A substitution effect occurs when consumption decreases due to the substitution of cheaper products for more expensive products (Hirschey, 2009 p.160). This effect could also occur with luxury vehicles if another automotive company launches a new desirable vehicle consumers would buy instead of the high priced luxury vehicles. For example, in Michigan there since we are the motor city there is a large car cruise coming up. During this cruise Chevrolet is going to be showing its new convertible Camaro. The attraction for an American made muscle car in Michigan is huge. This might cause some luxury car owners to purchase this new eye catching car and save some big bucks. In order to determine the effect of changing prices a price-consumption curve should be used (Hirschey, 2009 p.162). This cur...


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...s and diseconomies of scale. The long-run cost curve will determine if running multiple plants will be beneficial. If optimal firm size includes running multiple plants and it produces a cost advantage then this is multiplant economies of scale. But, if running multiple plants results in a cost disadvantage this would result in multiplant diseconomies of scale.
The incremental cost is a change in cost that is caused by a given managerial decision (Hirschey, 2009, p.290). Well the sunk cost does not vary no matter the decision. Both of these types of costs could affect the long-run and short-run cost curve, it all depends what area the decision will affect. If the decision deals with day to day operation these costs would affect the short-run cost functions. But, if the decision deals with long-term planning these costs would affect the long-run cost function.

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