Question

How are equilibrium price and quantity affected when the income of the consumers

(a) increase

(b) decrease?

Answer 1

An increase in the income of the buyers of a normal commodity will cause an increase in demand for the normal commodity. As a result, the demand curve of the commodity will shift to the right. As a result, the equilibrium price and equilibrium quantity both increase.
In this diagram, the original demand curve DD and the original supply curve SS increased at point E and determine equilibrium price equal to $O{P}_0$ and equilibrium quantity $O{Q}_0$. Now due to an increase in demand, demand curve shifts to the right, i.e., DD to $D_1{D}_1$. The new demand curve $D_1{D}_1$ intersects the given supply curve SS at point $E_1$ where new equilibrium price is $O{P}_1$ and new equilibrium quantity is $O{Q}_1$.