Suppose that the incomes of buyers in a particular market for a normal good increases, and suppose there is also a reduction in input prices.What would be expected to occur in this market?

Question

Quizplus · Accepted Answer

An increase in buyers' incomes for a normal good would increase demand, while a reduction in input prices would decrease the cost of production, shifting the supply curve to the right. As a result, both equilibrium quantity and price would increase, but the impact on the price would be ambiguous. However, since the increase in demand is caused by an increase in buyers' incomes, it is safe to assume that the effect on quantity demanded would be larger than the effect on quantity supplied, resulting in an overall increase in equilibrium quantity.

Suppose That the Incomes of Buyers in a Particular Market