Answer to Question #290985 in Microeconomics for yya

Question

New cars are normal good and people’s incomes increase . Simultaneously , auto manufactures must pay more for their worker’s health insurance . What is the effect on price and quantity of new cars ?

Answer 1

For normal goods, the income effect is positive. Therefore, a decrease in the relative price of new cars increase quantity demanded because lower price means consumers have a greater total purchasing power.