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).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?
A)A
B)B
C)C

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).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?
A)A 
B)B 
C)C

Quizplus · Accepted Answer

An increase in the number of companies producing motorcycles would shift the supply curve to the right (from S2 to S3). Since this increase in production would lead to more motorcycles being available in the market, it would put downward pressure on prices. A decrease in income (assuming motorcycles are a normal good) would shift the demand curve to the left (from D1 to D2). This would reduce the quantity of motorcycles demanded at every price level.

The new equilibrium would occur at the intersection of the new supply curve (S3) and the new demand curve (D2), which is point C. At this point, the quantity of motorcycles bought and sold would decrease, and the price would likely decrease as well.

Figure 3-8 -Refer to Figure 3-8.The Graph in This Figure Illustrates an Figure