Assume that the graphs show a competitive market for the product stated in the question. Select the graph above that best shows the change in the market specified in the following situation: the market for houses, when consumers experience a substantial fall in income due to a serious economic recession.

Question

Assume that the graphs show a competitive market for the product stated in the question.   Select the graph above that best shows the change in the market specified in the following situation: the market for houses, when consumers experience a substantial fall in income due to a serious economic recession.

Quizplus · Accepted Answer

A substantial fall in income due to a serious economic recession would lead to a decrease in demand for houses, as consumers would have less disposable income to spend on big ticket items like housing. This would shift the demand curve to the left, as shown in Graph B. The equilibrium price and quantity would both decrease accordingly.

Assume That the Graphs Show a Competitive Market for the Product