If the price and quantity for a normal good, Good A, is $7 and 5 units at the original equilibrium, what is one possibility for the new equilibrium of Good A if we see income increase and all other factors stay constant?

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BlackTom AI · Accepted Answer

We start by restating the scenario to ensure clarity: A normal good (Good A) has an initial price of $7 and an initial quantity of 5 units at the original equilibrium. An increase in income occurs while all other factors remain constant. For a normal good, higher income increases demand because consumers can buy more at every price, which typically raises both the equilibrium price and the equilibrium quantity when the supply curve is unchanged.

Option a: $8 and 4 units. Here the price rises to $8, but the quantity falls to 4 units. With an increase in income for a normal good, we expect the quantity to rise, not fall, since demand should shift right. So this combination is inconsistent with the effect of higher income on a normal good.

Option b: $8 and 6 units. In this choice, price rises to $8 and quantity rises to 6 units. This aligns with the basic intuition that an income increase shifts the demand curve to the right, leading to a higher equilibrium price and a higher equilibrium quantity when supply is held constant. The direction of both changes matches the expectation for a normal good under higher income.

Option c: $6 and 4 units. Here both price and quantity decrease. A decrease in price accompanying a higher income would imply a different dynamic, such as a decrease in demand or an increase in supply, which contradicts the scenario of a normal good experiencing higher income. Therefore this option is inconsistent with the given condition.

Option d: $6 and 6 units. This option shows a lower price but a higher quantity. While quantity increasing fits the normal-good income increase idea, the price decrease is not the typical outcome when demand shifts right unless there is an unusual supply response. Since the scenario states only income increases and other factors stay constant (i.e., the supply curve unchanged), the common outcome is a higher price accompanying a higher quantity, making this option less plausible.

In summary, among the provided choices, option b presents a consistent outcome with a normal good experiencing an income increase while keeping the supply unchanged: higher price and higher quantity at equilibrium.

MCD2020 - T1 - 2025 Lecture Quiz 2 - Market Forces of Supply and Demand

If the price and quantity for a normal good, Good A, is $7 and 5 units at the original equilibrium, what is one possibility for the new equilibrium of Good A if we see income increase and all other factors stay constant?

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MCD2020 - T1 - 2025 Lecture Quiz 2 - Market Forces of Supply and Demand

If the price and quantity for a normal good, Good A, is $7 and 5 units at the original equilibrium, what is one possibility for the new equilibrium of Good A if we see income increase and all other factors stay constant?

查看解析

登录即可查看完整答案

类似问题

Price decreases for a product are most likely to occur when

Assume that a competitive industry producing a normal good is in long-run equilibrium. If average consumer income decreases, which of the following changes will occur?

Which of the following describes how a market will respond when the scarcity of a good increases?

Assume that consumers consider popcorn and pretzels to be substitutes. A significant decrease in the supply of popcorn will affect the pretzel market by

In the coffee market, which of the following changes will increase the price and decrease the quantity of coffee?

At an initial equilibrium, demand curve shifts to the left, supply curve remain unchanged. This creates ______________ and prices will _______________ restore the market equilibrium.

At an initial equilibrium, supply curve shifts to the left, demand curve remain unchanged. This creates ______________ and prices will _______________ restore the market equilibrium.

Due to the Covid-19 Pandemic, the demand for face masks and sanitizers have greatly increased which also increased the price for these products by 50%. Which of the following statements is true?

更多留学生实用工具

希望你的学习变得更简单

At an initial equilibrium, demand curve shifts to the left, supply curve remain unchanged. This creates and prices will _ restore the market equilibrium.

At an initial equilibrium, supply curve shifts to the left, demand curve remain unchanged. This creates and prices will _ restore the market equilibrium.