Shoes are a normal good and peopleʹs incomes rise. Simultaneously the number of companies making shoes decreases. As a result, the equilibrium price of a pair of shoes________and the equilibrium quantity ________.

Question

Quizplus · Accepted Answer

As people's incomes rise, they will have more purchasing power and demand for shoes will increase, which would put upward pressure on the equilibrium price. However, the decrease in the number of companies making shoes will decrease the supply, which would put upward pressure on the equilibrium price. Therefore, the price of shoes will definitely rise. The equilibrium quantity, on the other hand, might increase, decrease, or not change, depending on the size of the increase in demand and the decrease in supply.

Shoes Are a Normal Good and Peopleʹs Incomes Rise