Answer to Question #323559 in Microeconomics for Bongeka

Question

Due to substantial increase in prices in Country A, The real income level of the population in Country A decreases. Show a diagram how the decrease in the income level in Country A will affect the demand for meat, which normal Good, in How the equilibrium price and equilibrium Quantity of meat will change in Country A

Answer 1

Increase in prices leads to an automatic decrease in income levels in the country. The level at which the people buy goods and services is reduced, this is because their is no equal increase in real income,as the prices of goods and services are increased in the country. Therefore their is change in pattern at which they consume goods, and thus the people look out to satisfy only the basic needs in correlation with their income.

Their is a fall in equilibrium price and quantity due to reduced real income. The demand for the goods will reduce and their supply will also reduce due to the reduction of real income.