Suppose that we illustrate demand and supply with quantity on the horizontal axis and price on the vertical axis. Let demand be a function of price and income, Qd (P, I). Which of the following statements is true?
A)A change in income will cause a shift in the supply curve.
B)A change in income level is represented by a movement along the demand curve.
C)Income is not represented on one of the axes, and so is treated as an exogenous variable in the graphical analysis.
D)Price and income together must change in order to create a shift in the demand curve.

Question

Quizplus · Accepted Answer

Income is considered an exogenous variable in this context, meaning it is not depicted on either axis but can influence the position of the demand curve. Changes in income can lead to shifts in the demand curve, as it affects consumers' purchasing power, but it does not directly affect the supply curve nor is it represented by a movement along the demand curve.

Suppose That We Illustrate Demand and Supply with Quantity on the Horizontal