Using a carefully-labeled diagram, explain an Engel curve for a good that is initially a normal good, but eventually becomes an inferior good.

What will be an ideal response?

An Engel curve shows the relationship between income and the amount of a good consumed, holding everything else constant. If a good is normal, then an increase in income will cause more of the good to be consumed. Therefore, the Engel curve will be positively-sloped. This is shown by the segment labeled ab in Figure 5.12. If a good is inferior, then an increase in income will cause less of the good to be consumed, so the Engle curve is negatively-sloped. This is shown be the segment labeled bc in Figure 5.12.