Multiple Choice
Which of the following is a determinant of demand (i.e., a factor that shifts the demand curve for a good)?
2
views
3. The Market Forces of Supply and Demand
Shifts in the Demand Curve
Multiple Choice
What happens to the equilibrium price and quantity of coffee if consumer incomes rise and coffee is a normal good?
A
Equilibrium price decreases and equilibrium quantity increases
B
Equilibrium price increases and equilibrium quantity increases
C
Equilibrium price increases and equilibrium quantity decreases
D
Equilibrium price decreases and equilibrium quantity decreases
Verified step by step guidance1
Step 1: Understand the concept of a normal good. A normal good is one for which demand increases as consumer incomes rise. This means that when incomes go up, consumers buy more of the good at every price level.
Step 2: Analyze the effect of an increase in consumer incomes on the demand curve for coffee. Since coffee is a normal good, the demand curve shifts to the right, indicating higher quantity demanded at each price.
Step 3: Consider the supply curve as given (no change in supply). With demand increasing and supply constant, the new equilibrium will be at a higher price and higher quantity.
Step 4: Use the basic equilibrium condition where demand equals supply. The rightward shift in demand causes the equilibrium price to rise because suppliers can charge more due to increased willingness to pay.
Step 5: Conclude that both the equilibrium price and equilibrium quantity of coffee increase when consumer incomes rise and coffee is a normal good.
Related Videos
Related Practice
