Question

Questions are based on the demand and supply diagrams in Figure $D_1$ and $S_1$ are the original demand and supply curves $D_2,D_3,S_2$ and $S_3$ are possible new demand and supply curves. Starting from initial co librium point (1) what point on the graph most likely to result from each change?

$\to$Assume that consumer income has increased. Given that Y is an inferior good, which point in Figure is most likely to be the new equilibrium price and quantity?

• A. Point 4.
• B. Point 6.
• C. Point 5.
• D. Point 8.

Answer 1

Answer: (B)

Point 6.

Demand decreases because in case of inferior goods with the increase in income demand decreases. Supply remains constant as nothing is given about it. Thus, Point 6 marks the new equilibrium point.