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Suppose a decrease in consumers' income causes a decrease in the demand for chicken and an increase in the demand for potatoes
Suppose a decrease in consumers' income causes a decrease in the demand for chicken and an increase in the demand for potatoes. Which good is inferior and which is normal? How will the equilibrium price and quantity change for each good?
Expert Solution
Chicken is a normal good and potatoes are an inferior good. A decrease in income causes a decrease in the demand for chicken: A positive relationship exists between income and the demand for chicken. A decrease in income causes an increase in the demand for potatoes: A negative relationship exists between income and the demand for potatoes.
The decrease in the demand for chicken (the demand curve for chicken shifts to the left) will cause a decrease in equilibrium price and a decrease in equilibrium quantity.
The increase in the demand for potatoes (demand curve for potatoes shifts to the right) will cause an increase in equilibrium price and an increase in equilibrium quantity.
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