Answer to Question #169906 in Macroeconomics for Ahmed Ismail

Question

With the aid of 3 diagrams, analyse the effects of a simultaneous increase in consumers income and cost of production on equilibrium price and quantity of a commodity say X.

Answer 1

As The consumer income increases and cost of production increases

So The demand of the customer remains same and supply from production will also remains same.

Hwever Due to increase in cost of production, The equilibrium price just shifts above the previous equillibrium price.

This is due to the increasev in the cost of production, The price of particular commodity will increase and hence equillibrium price shifts.

The equllibrium between cost of production and income of person remains same but price will shift.

But This does not sffect the quantity of commodity.