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In supply and demand theory, an increase in consumer income for a normal good will: a
In supply and demand theory, an increase in consumer income for a normal good will:
a. Shift the demand curve in and to the left, lowering the equilibrium price but raising the equilibrium quantity.
b. Shift the supply curve out and to the right, lowering the equilibrium price but raising the equilibrium quantity.
c. Shift the demand curve out and to the right, lowering the equilibrium price but raising the equilibrium quantity.
d. Shift the supply curve in and to the left, lowering the equilibrium price and quantity.
e. Shift the demand curve out and to the right, raising the equilibrium price and quantity.
Expert Solution
The answer to this question is:
e. Shift the demand curve out and to the right, raising the equilibrium price and quantity.
When the income increases, the consumers will increase their consumption of a product. On the graph below, the rise in consumption is illustrated by the rightward shift in the demand curve from D0 to D1. This change increases the equilibrium price from P0 to P1 and equilibrium quantity from Q0 to Q1
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