Figure 3-8
-Refer to Figure 3-8. The graph in this figure illustrates an initial competitive equilibrium in the market for motorcycles at the intersection of D₁ and S₂ (point B) . Assume that Motorcycles are a normal good. If there is an increase in number of companies producing motorcycles and a decrease in income (assume motorcycles are a normal good) , the equilibrium could move to which point?

Question

Figure 3-8

-Refer to Figure 3-8. The graph in this figure illustrates an initial competitive equilibrium in the market for motorcycles at the intersection of D₁ and S₂ (point B) . Assume that Motorcycles are a normal good. If there is an increase in number of companies producing motorcycles and a decrease in income (assume motorcycles are a normal good) , the equilibrium could move to which point?

Quizplus · Accepted Answer

An increase in the number of companies producing motorcycles will shift the supply curve to the right (from SS1U1B12S1U1B0 to SS1U1B2S1U1B0), resulting in a new equilibrium point. However, a decrease in income will cause a decrease in demand because motorcycles are a normal good. This will shift the demand curve leftwards (from DS1U1B11S1U1B0 to DS1U1B1S1U1B0), further affecting the new equilibrium point. As a result, the new equilibrium point will be at the intersection of DS1U1B1S1U1B0 and SS1U1B2S1U1B0, which is point C.

Figure 3-8 -Refer to Figure 3-8. the Graph in This Figure Illustrates