CMA Foundation · Fundamentals of Business Economics and Management · The Fundamentals of Economics
Consumers' incomes rise, and the good concerned is a normal good. Other factors remain constant. What is the effect on the equilibrium price and quantity of that good?
Equilibrium price and quantity both rise. Higher income raises demand for a normal good and shifts the demand curve to the right. Along an unchanged upward-sloping supply curve, the new intersection lies at a higher price and a larger quantity traded.
- APrice rises and quantity falls
- BPrice falls and quantity rises
- CPrice rises and quantity risesCorrect
- DPrice and quantity both fall
Explanation
Higher income increases demand for a normal good, shifting the demand curve rightward. With an unchanged upward-sloping supply curve, the new intersection is at a higher price and higher quantity. Price rising with quantity falling would need a leftward supply shift, not a demand increase.
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