Nepal Commerce Campus

Presentation

On

Price Effect And Derivation Of PCC

Submitted By: Kusum BC

Submitted to: Biraj Pyakurel sir
 What is price effect?
The change in the consumer’s equilibrium position
due to the change in the price of the commodity is
known as price effect or total effect.

Price effect is negative in case of normal goods and

positive in case of Giffen goods.
Price Consumption Curve(PCC)
When we join the different equilibrium points of
price effect we get a curve, which is known as
Price Consumption Curve(PCC).

In other words, PCC is the locus of different

equilibrium condition of consumer due to the
change in price.
 Price effect on normal goods
(If X and Y are substitutes)
 Here, the initial budget line is PL1
and initial equilibrium point is Q.
 Suppose, price of X commodity fall ,
consumer’s purchasing power rises from
PL1 to PL2 ,PL3 and PL4 respectively.
 Due to this, consumer’s equilibrium
condition also changes from Q to R,
S and T respectively with higher level of
satisfaction.
 This change in consumer’s equilibrium position from Q to R, R
to S and S to T is called Price effect or Total effect.
 If we join Q , R, S and T, we obtained a downward sloped curve
called Price Consumption Curve.
 Price effect on normal goods
(If X and Y are complements)
 Here, the initial budget line is PQ
and initial equilibrium point is R.
 Suppose, price of X commodity fall,
consumer’s purchasing power rises
from PQ to PQ1 respectively.
Due to this, consumer’s equilibrium
condition also changes from R to T
with higher level of satisfaction, this change is known as
Price effect or Total effect.
If we join R and T, we obtained a positive sloped curve
which is known as Price Consumption Curve.
 Price effect on normal goods
(If X and Y are non-related goods)
 Here, the initial budget line is PL1
and initial equilibrium point is Q.
 Suppose, price of X commodity fall ,
consumer’s purchasing power rises from
PL1 to PL2 and PL3 respectively.
 Due to this, consumer’s equilibrium
condition also changes from Q to R and
S respectively with higher level of satisfaction.
 This change in consumer’s equilibrium position from Q to R
and R to S is called Price effect or Total effect.
 If we join Q , R and S , we obtained a horizontal curve called
Price Consumption Curve.
 Price effect on Giffen goods
 Here, the initial budget line is AB
and initial equilibrium point is E.
 Suppose, price of X commodity
fall ,consumer’s purchasing power
rises from AB to AB’.
 Due to this, consumer’s equilibrium
condition also changes from E to E’ ,
with higher level of satisfaction.
This change is known as Price effect or Total effect.
 If we join E to E’ , we obtained a downward sloped curve called
Price Consumption Curve.
THANK YOU