Answer to Question #322526 in Microeconomics for Mulweli G

Question

Due to substantial increases in prices in Country A, the real income level of the population in Country A decreases. Show on a diagram how the decrease in the income level in Country A will affect the demand for meat, which is a normal good. Also indicate how the equilibrium price and equilibrium quantity of meat will change in Country A.

Answer 1

Increase in prices with a decrease in income level lowers the purchasing power for incomes are lower than cost.

Therefore people consider settling the basic needs prior to luxury wants.Hence meat being a normal good but not basic is avoided by many people.They shift to other subsidies which are cheaper and more necessary to meet their basic needs.This results to decrease in demand for meat which in turn makes the suppliers decrease their supply.

Such interaction between demand and supply will result to fall in the equilibrium price and a decrease in the equilibrium quantity.