Answer to Question #177240 in Microeconomics for sania

Question

Suppose the demand and supply curves of good-X are given in Figure 1 below. (draw separate diagram for each question)

What will happen to the equilibrium price and equilibrium quantity if:

a.      Consumers’ income increases and good X is normal.

b.     Price of complement good of X increases.

c.      The cost of inputs used in the production of X increases.

d.     Both consumers’ income increases (good X in inferior) and the technological advancement reduces the cost of production of good X.

Answer 1

a)

In case of normal goods, demand for the commodity will increase when there is a rise in the income of the consumer. Equiulibrium price and quatity shifts to the right

b)

The demand of a good will decrease if price of its complementary good rises. equilibrium price remains constant while the equilibrium quantity shifts to the left.

c)

When cost of inputs used in production increases the demand of the commodity reduces hence the equilibrium shifts to the left.

d)

the equilibrium shifts to the left