Part A: Assume the market is initially at point B and that pizza is a normal good. A decrease in income would cause the market to move from point B on D2 to

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Part A: Assume the market is initially at point B and that pizza is a normal good. A decrease in income would cause the market to move from point B on D2 to

BlackTom AI · Accepted Answer

The question describes a market for pizza where pizza is a normal good, and asks what happens when income decreases.
First, recall the relationship: for a normal good, a fall in income leads to a decrease in quantity demanded, which is represented by a leftward shift of the entire demand curve (a decrease in demand).
In the scenario, the market is initially at point B on the demand curve labeled D2. If income falls, the demand curve should shift left from D2 to a lower level of demand, which is depicted as D1. With the demand curve shifting left, the new equilibrium point, given the supply conditions, would be at a lower quantity and typically a lower price, corresponding to point A on D1.
Intuitively, since pizza is a normal good, households buy less pizza as their incomes drop, moving the market to a lower quantity demanded along the same supply framework. This contrasts with an inferior good, where a decrease in income would increase quantity demanded (shifting demand to the right), or with a scenario where only quantity along a fixed demand curve would change due to price, not income.
Because the question specifies a decrease in income and identifies pizza as a normal good, the logical movement is from B on D2 to A on D1, reflecting the leftward shift of the demand curve to a lower level of demand.
Note: If one were to consider alternative interpretations, such as a movement along the same demand curve due to a price change, that would not be consistent with income-driven demand shifts described in the problem. The key idea is that income changes shift the entire demand curve for a normal good, not just movement along a fixed curve.

ECON_002_001_25F Problem Set 1

Part A: Assume the market is initially at point B and that pizza is a normal good. A decrease in income would cause the market to move from point B on D2 to

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