Economic Curves
Economics · आर्थिक वक्र
📋Quick Overview
Economic curves are graphical tools that illustrate relationships between economic variables. Important curves for competitive exams include: Demand Curve (price vs quantity), Supply Curve, Lorenz Curve (income inequality), Laffer Curve (tax rate vs revenue), Phillips Curve (inflation vs unemployment), Engel Curve (income vs spending), and the IS-LM model (goods market and money market equilibrium). Each curve has been asked in SSC, RRB, and UPSC exams.
📖All Important Economic Curves
| Curve | Shows Relationship Between | Named After | Key Point |
|---|---|---|---|
| Demand Curve | Price vs Quantity Demanded | Alfred Marshall | Slopes DOWNWARD (left to right). Inverse relationship. Exceptions: Giffen & Veblen goods (upward sloping) |
| Supply Curve | Price vs Quantity Supplied | Alfred Marshall | Slopes UPWARD (left to right). Direct relationship. Higher price = more supply |
| Lorenz Curve | Income Inequality in a society | Max Otto Lorenz (1905) | Shows distribution of income/wealth. Farther from 45-degree line = MORE inequality. Used with GINI Coefficient (0=perfect equality, 1=perfect inequality) |
| Laffer Curve | Tax Rate vs Tax Revenue | Arthur Laffer | Bell-shaped. Shows there's an OPTIMAL tax rate. Beyond that, revenue FALLS (people evade or work less). Too high tax = less revenue |
| Phillips Curve | Inflation vs Unemployment | A.W. Phillips (1958) | INVERSE relationship. High inflation → Low unemployment (and vice versa). Stagflation CONTRADICTS this curve |
| Engel Curve | Income vs Expenditure on a good | Ernst Engel (1857) | Engel's Law: As income rises, % spent on FOOD decreases (though absolute spending may rise). Poor spend higher % on food |
| IS-LM Curve | Goods Market (IS) & Money Market (LM) equilibrium | John Hicks & Alvin Hansen | IS = Investment-Saving (goods market). LM = Liquidity preference-Money supply (money market). Intersection = general equilibrium (both markets balanced) |
📝Detailed Explanations
- •Lorenz Curve + Gini Coefficient: Gini ranges 0 to 1. India's Gini ~0.35. Countries like South Africa have high Gini (~0.63). Scandinavian countries have low Gini (~0.25).
- •Laffer Curve: Named after Arthur Laffer. Key insight — at 0% tax rate, revenue = 0; at 100% tax rate, revenue also = 0 (no one works). Optimal rate is somewhere in between.
- •Phillips Curve was based on UK data (1861-1957). In 1970s, stagflation in USA challenged this relationship.
- •Engel's Law is important for understanding poverty. If a family spends >50% income on food, they are likely poor.
- •IS-LM model is also called Hicks-Hansen model. IS slopes downward, LM slopes upward.