Use the following to answer questions: Figure: Industry Firms -(Figure: Industry Firms) Use the figures. The market for a normal good is characterized by demand curve D₂ and supply curve S₂. A decrease in income will cause: A) the demand curve to shift D₁ causing firms to earn economic profits. The supply curve will not change, so price will rise and firms will earn normal profits. B) the supply curve to shift D₁ causing firms to earn economic profits. The supply curve will decrease to S₁ as firms exit the industry. Eventually the market price will rise and firms will earn above-normal profits. C) the demand curve to shift D₁ causing firms to earn economic losses. The supply curve will decrease to S₁ as firms exit the industry. Eventually the market price will rise and firms will earn normal profits. D) the supply curve to shift S₁ causing firms to earn economic losses. The demand curve will decrease to D₁ as firms enter the industry. Eventually the market price will fall and firms will earn normal profits.

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A decrease in income will cause a shift in the demand curve to the left (from D₂ to D₁). This will result in a decrease in quantity demanded and firms will earn economic losses. As a result of this, the supply curve will shift to the left (from S₂ to S₁) as firms exit the industry. Eventually, the market price will rise and firms will earn normal profits.

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