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

Question

Quizplus · Accepted Answer

An increase in buyer incomes would lead to an increase in demand for the normal good, causing both the equilibrium price and quantity to increase. However, the reduction in input prices would cause a decrease in production costs for suppliers, which would shift the supply curve to the right. As a result, the equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous and dependent on the magnitude of the shifts in both demand and supply. Therefore, we can expect an increase in equilibrium quantity, but the impact on equilibrium price is ambiguous.

Suppose That the Incomes of Buyers in a Particular Market