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: In 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: In the market for houses, when consumers experience a substantial fall in income due to a serious economic recession.

Quizplus · Accepted Answer

In a competitive market for houses, a substantial fall in consumers' income due to an economic recession would lead to a decrease in demand for houses. This would shift the demand curve to the left, as shown in Graph B. The equilibrium price and quantity would decrease as a result. Graph A and C show an increase in demand, while Graph D shows a decrease in supply, none of which accurately represents the given situation.

Assume That the Graphs Show a Competitive Market for the Product