: Price Consumption Curve

When the price of a good changes, the consumer purchases a different optimal bundle of the two goods in response to the price change. Each time the price of a good changes, the optimal bundle changes. The Price Consumption Curve, or PCC, shows the collection of optimal bundles of two goods that a consumer purchases, given the changes in the price of one good. For example, as the price of books decreases, the student purchases a different optimal bundle. Similarly, when the price of books increases, they purchase another optimal bundle. By connecting all the optimal bundles across the price changes, the PCC for books is derived.

When analyzing the PCC, the effect of changes in the price of one specific good is observed while keeping the consumer's income, preferences, and the prices of the other good constant. This helps reveal how a consumer's optimal consumption bundle adjusts in response to price changes of that particular good whose price changes.

The price consumption curve shows variation in consumption to changes in the prices of one product. The consumer's given weekly budget and the price of the other product are constant.

Consider John's weekly clothing purchases on the x-axis and meals out frequency on the y-axis. Given a weekly budget of two hundred dollars, the price of clothing is twenty dollars per unit, and the price of meals out is ten dollars per unit. John is at equilibrium at point E, with seven units of clothing and six meals out.

When the price of clothing falls to ten dollars per unit, the budget line rotates to BL2. His new equilibrium point is F, which enables him to buy fifteen units of clothing.

When the price falls to eight dollars, the budget line rotates to BL3. His equilibrium point is now G, which enables him to buy twenty units of clothing.

The price consumption curve is derived by connecting all equilibrium points.

The price consumption curve helps in deriving the demand curve of a consumer.