Question

If consumer income increases, demand for normal goods also increases. What will be its effects on equilibrium price and equilibrium quantity?

Hint:

For normal goods, an increase in consumer income leads to an increase in demand, which raises both the equilibrium price and the equilibrium quantity.

Answer 1

Step 1: Understand the effect of an increase in consumer income.
When consumer income increases, the demand for normal goods increases because consumers are now able to purchase more goods at any given price.
Step 2: Impact on demand curve.
An increase in demand shifts the demand curve to the right. This leads to an increase in the equilibrium price and equilibrium quantity, as suppliers respond to the higher demand.
Step 3: Effect on equilibrium price and quantity.
- Equilibrium Price: The price increases due to higher demand.
- Equilibrium Quantity: The quantity increases as suppliers produce more to meet the higher demand.