Suppose the Income of consumers in a market increase. How will this effect the equilibrium price of the commodity, assuming that it is a normal good?
(A) There is excess demand at the existing price.
(B) Rising price leads to contraction in demand and expansion in supply and a new equilibrium price is attained, which is higher than the initial price.
(C) The demand curve shifts rightward.
(D) There is upward pressure on the price and price starts rising.
Choose the correct answer from the options given below:
Suppose the Income of consumers in a market increase. How will this effect the equilibrium price of the commodity, assuming that it is a normal good?
(A) There is excess demand at the existing price.
(B) Rising price leads to contraction in demand and expansion in supply and a new equilibrium price is attained, which is higher than the initial price.
(C) The demand curve shifts rightward.
(D) There is upward pressure on the price and price starts rising.
Choose the correct answer from the options given below:
Solution
According to us, CADB is the right sequence:
(C) The demand curve shifts rightward: This is the initial trigger caused by higher consumer income.
(A) There is excess demand at the existing price: This is the immediate consequence of the shift before the market price has had a chance to react.
(D) There is upward pressure on the price and price starts rising: Buyers begin competing against one another for the limited goods, pushing the price higher.
(B) Rising price leads to contraction in demand and expansion in supply...: The rising price causes buyers to demand slightly less (contraction) and sellers to supply more (expansion) until they meet at the new, higher equilibrium point.
However, as per NTA, Option-2 is the final answer key (after all the challenges):
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