If the price and quantity for a normal good, Good A, is $7 and 5 units at the original equilibrium, what is one possibility for the new equilibrium of Good A if we see income increase and all other factors stay constant?

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BlackTom AI · Accepted Answer

For a normal good, an increase in income causes the demand curve to shift right (increase in demand), while supply and other factors remain constant; this typically raises both equilibrium price and equilibrium quantity. 1) Relevant knowledge points and concepts - Normal good: demand increases when consumer income rises. - With supply held constant, a rightward shift in demand raises both equilibrium price and quantity. - Equilibrium must satisfy both greater-than conditions relative to the original equilibrium if demand alone increases. 2) Complete reasoning process step by step - Original equilibrium: Price p0 = $7, Quantity q0 = 5. - Income increases → demand increases (rightward shift). Supply unchanged → new equilibrium price p1 > p0 and new equilibrium quantity q1 > q0. - Therefore, a valid new equilibrium must have price > $7 and quantity > 5. 3) Calculations / intermediate checks for each option - Option a: $8 and 4 units → price 8 > 7 (OK), quantity 4 < 5 (not OK). - Option b: $8 and 6 units → price 8 > 7 (OK), quantity 6 > 5 (OK). - Option c: $6 and 4 units → price 6 < 7 (not OK), quantity 4 < 5 (not OK). - Option d: $6 and 6 units → price 6 < 7 (not OK), quantity 6 > 5 (OK). 4) Why the correct answer is correct - Option b ($8 and 6 units) is the only choice where both price and quantity increase relative to the original equilibrium, which matches the predicted outcome for a normal good when income rises and all other factors (including supply) remain constant. 5) Why the other options are incorrect - a: Quantity falls to 4, contradicting the expected increase in quantity for a demand shift. - c: Both price and quantity fall, contrary to an increase in demand for a normal good. - d: Price falls to $6 despite increased demand; with supply unchanged this is inconsistent. 6) Conclusion - The new equilibrium must have both higher price and higher quantity; option b ($8 and 6 units) is correct and matches the provided answer.

If the price and quantity for a normal good, Good A, is $7 and 5 units at the original equilibrium, what is one possibility for the new equilibrium of Good A if we see income increase and all other factors stay constant?Single choice

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If the price and quantity for a normal good, Good A, is $7 and 5 units at the original equilibrium, what is one possibility for the new equilibrium of Good A if we see income increase and all other factors stay constant?Single choice

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When the price of frozen french fries increases, the equilibrium price of frozen sweet potato fries, a substitute good, will because of a shift in .