ACCA Applied Knowledge · Business and Technology · Microeconomic factors
Consumer incomes rise and, as a result, demand for restaurant meals (a normal good) increases, with supply unchanged. What is the effect on the market equilibrium for restaurant meals?
Both equilibrium price and quantity rise. Higher incomes shift demand for a normal good to the right, and with supply unchanged the new intersection with the upward-sloping supply curve lies at a higher price and a larger quantity traded.
- AEquilibrium price rises and equilibrium quantity risesCorrect
- BEquilibrium price rises and equilibrium quantity falls
- CEquilibrium price falls and equilibrium quantity rises
Explanation
Higher income for a normal good shifts the demand curve to the right. With an unchanged upward-sloping supply curve, the new intersection is at a higher price and a higher quantity. Option B would need a leftward supply shift.
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