Refer to the graph below, showing the market supply and demand for a product.Assume that the market is initially in equilibrium where D₁ and S₁ intersect.If consumer incomes decreased and production costs increased, then new equilibrium would be at:

Question

Quizplus · Accepted Answer

If consumer incomes decrease, demand for the product will decrease, causing a shift to the left in the demand curve from D1 to D2. Additionally, if production costs increase, supply of the product will decrease, causing a shift to the left in the supply curve from S1 to S2. The new equilibrium point will be where the new supply and demand curves intersect, which is at point E (P₃ and Q₁). Therefore, the answer is C.

Refer to the Graph Below, Showing the Market Supply and Demand