Suppose that the incomes of buyers in a particular market for a normal good decrease and there is also an increase in input prices. What would we expect to occur in this market?

Question

Quizplus · Accepted Answer

A decrease in income of buyers for a normal good would shift the demand curve to the left, resulting in a decrease in equilibrium quantity. An increase in input prices would shift the supply curve to the left, resulting in an increase in equilibrium price. However, the impact on equilibrium quantity would be ambiguous as it depends on the magnitude of the shift in the demand and supply curves. Therefore, we would expect a decrease in equilibrium quantity and an ambiguous impact on equilibrium price. This is consistent with choice D.

Suppose That the Incomes of Buyers in a Particular Market