Answer to Question #270696 in Microeconomics for Zara

Question

Consider a competitive market for apartments. What would be the effect on the equilibrium output and price if the consumer’s income increases?

Answer 1

Since the market is competitive, the other things remain constant.

With an increase in income of the consumers, causes the demand curve to shift to the right. This means an increase in the demand of the apartments as the consumers can now afford. The demand curve cuts the supply curve on a higher level and this translates to a shift in equilibrium point to the right showing an increase in the number of apartments demanded and the price also. Increased demand of the apartments may make the construction of such apartments to increase in the long run as they have ready consumers.