Suppose that the incomes of buyers in a particular market for a normal good decrease and there is also a reduction in input prices. What would we expect to occur in this market?

Question

Quizplus · Accepted Answer

When incomes decrease, demand for a normal good decreases, leading to a lower equilibrium price. A reduction in input prices decreases production costs, potentially increasing supply, which could also lower the equilibrium price. However, the combined effect on the quantity sold is ambiguous because the decrease in demand and the increase in supply have opposite effects on quantity.

Suppose That the Incomes of Buyers in a Particular Market