Answer to Question #313579 in Microeconomics for herry

Question

Due to substatial increases in prices in country A, the al income level of the population in country A decreases. Show a diagram how decrease in the income level in country A will affect the demand for meat which is a normal good. Also indicate how the equilibrium quantity of meat will change in country A. The direction of any change should be indicated using arrows

Answer 1

A decrease in the income level will lead to a decrease in demand for normal goods including meat due to the less income available to be spent and products becoming relatively expensive.

This decrease will shift the demand curve for meat to the left from D₀ to D₁ as shown in the diagram below.

A shift in demand to the left will shift the equilibrium point from E₀ to E₁ which is lower compared to the original. The lower price will create a surplus in the market and thus cause a movement along the supply curve to the left indicating a lower supply. All this will lead to creation of a new market equilibrium with quantity reducing from Q₀ to Q₁ and price also reducing from P₀ to P₁.