Question

In: Economics

IV- The following figure shows four situation of the market for normal good with changes in either the supply curve or the demand curve.

 IV- The following figure shows four situation of the market for normal good with changes in either the supply curve or the demand curve.  

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 1- Which graph best illustrates the market after an increase in the income of consumers?

 2- Which graph best illustrates the market if the cost of production of the good increases?

 3- Which graph best illustrates the market if the price of substitute good increases?  



Solutions

Expert Solution

1.Answer: Graph A best illustrates the market after an increase in the income of consumers as increase in consumers income will cause increase in demand and in graph A demand curve is shifting upward from D1 to D2 which shows increase in demand.

Hence,Answer is Graph A

2.Answer : When cost of production rises then price of goods also rises and firm supplies more goods to have more profit. So,In graph C supply curve shifts from S1 to S2 whch shows more supply.

Hence,Answer is Graph C

3.Answer: When price of substitute goods increases then consumer buy another goods(substitute) and demand for substitute goods falls because of increase in its price, which shows graph D.

Hence,Answer is Graph D.

Rahul Sunny answered 2 years ago
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