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

Question

Quizplus · Accepted Answer

When incomes increase, demand for a normal good increases, leading to a higher equilibrium price. An increase in input prices raises production costs, reducing supply, which also tends to increase prices. However, the effect on quantity is ambiguous because the increase in demand suggests a higher quantity sold, while the decrease in supply suggests a lower quantity sold.

Suppose That the Incomes of Buyers in a Particular Market