Answer to Question #303979 in Microeconomics for Reee

Question

If the cost of producing an inferior product rises, and people’s incomes increase at the same time, the equilibrium price will …

1. 

decrease.

2. 

increase.

3. 

stay the same.

4. 

be indeterminate.

Answer 1

Since an increase in the cost of production affects the quantity supplied of any an inferior good, that supply curve shifts inwards. If consumer's income increases, such commodity would be purchased lesser. The overall effect on the equilibrium price would be an increase in the equilibrium price.

Option 2) Increase