USE CLEARLY LABELLED DIAGRAMS TO EXPLAIN THE EFFECT TO THE EQUILIBRIUM PRICE AND QUANTITY OF GOOD X IF:
a) THE COST OF PRODUCING GOOD X INCREASED
b) THE CONSUMER INCOME INCREASED
Answers
Answer:
a. The equilibrium price will increase and equilibrium quantity will decline.
b. Both equilibrium price and quantity will increase.
Explanation:
An increase in the cost of producing good X will make it expensive to produce good X. This will cause the supply of good X to decrease. This decrease in supply will cause the supply curve to shift to the left.
This leftward shift in the supply curve will cause the equilibrium price to increase and equilibrium quantity to fall.
An increase in consumer income will increase the purchasing power of the consumer. As a result, the demand for good X will increase. The demand curve will move to the right.
This rightward shift in the demand curve will cause the equilibrium price as well as the equilibrium quantity to increase.
