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CA Foundation · Business Economics · Theory of Demand and Supply

A consumer's demand curve shifts rightward when there is an increase in the consumer's income, assuming the good is a normal good. Which of the following best explains why this shift occurs?

A rightward shift in the demand curve for a normal good occurs because the consumer's increased income raises purchasing power, allowing greater consumption at each price level. This is a change in demand (the curve itself), not a movement along the curve.

  1. AThe price of the good has increased
  2. BThe consumer's purchasing power has improved, allowing consumption of more units at each price levelCorrect
  3. CThe price elasticity of demand has become more elastic
  4. DThe law of diminishing marginal utility no longer applies to this good

Explanation

When income rises and the good is normal, consumers can afford more at each price point, causing the entire demand curve to shift right. Option 0 is incorrect because a price change moves along the curve, not shifts it. Option 2 confuses elasticity with quantity demanded changes. Option 3 misrepresents how utility laws work with income changes.

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