Suppose rice is a normal good. If consumers' incomes fall, and a new technology is introduced that lowers the marginal cost of producing rice, then the equilibrium:
A)price of rice will increase, but we cannot say for sure what will happen to the equilibrium quantity.
B)price of rice will fall, but we cannot say for sure what will happen to the equilibrium quantity.
C)quantity of rice will increase, but we cannot say for sure what will happen to the equilibrium price.
D)quantity of rice will decrease, but we cannot say for sure what will happen to the equilibrium price.

Question

Quizplus · Accepted Answer

A decrease in the marginal cost of producing rice will increase supply, and a decrease in income will decrease demand if rice is normal good. When demand decreases and supply increases, the new equilibrium price will be lower, but we cannot say for certain whether equilibrium quantity will increase or decrease.

Suppose Rice Is a Normal Good