Question

What will be the effect on equilibrium price and quantity if the following changes occur Increase in income of the consumer Decrease in price of complementary goods decrease in price of substitute goods increase in price of inputs increase in price of Other goods use of modern technology

Answer 1

Dear Student,
Effect of equilibrium price and quantity when :

• Increase in the income of the consumer : When the income of the consumer increases, demand of the consumer increases and there will be increase in the equilibrium price and equilibrium quantity.
• Decrease in the price of the complementary good : Due to decrease in the price of the complementary good , there will increase in the demand of the good and this will lead to increase in the equilibrium price and equilibrium quantity.
• Decrease in the price of the substitute goods: When there is a decrease in the price of the substitute good there will decrease in the demand of the good and this will lead to decrease in the equilibrium price and the equilibrium quantity.
• Increase in the price of the inputs : When the price of the inputs increases, supply of the good decreases and this lead to decrease in the equilibrium quantity and increase in the price of the good.
• increase in the price of other goods : Related goods have only impact on the price and the quantity of the good.
• Use of modern technology : Due to use of modern technology, supply increases and there will be an increase in the equilibrium quantity and decrease in the price of the good.

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