Question

If the price and quantity for a normal good, Good X, is $10 and 20 units...

If the price and quantity for a normal good, Good X, is $10 and 20 units at the original equilibrium, what is one possibility for the new equilibrium of Good X if we see income decrease and all other factors stay constant?

$12 and 25 units

$8 and 25 units

$12 and 15 units

$8 and 15 units
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Answer #1

The correct answer is 'Option D'.

The initial equilibrium price is $10 and the initial equilibrium quantity is 20 units. It is given that the good is a normal good. A fall in income of consumer will lead to a fall in the demand of the good which will shift the demand curve to the left as a result of which the new equilibrium price will fall and the new equilibrium quantity will also fall. So, the possible new equilibrium price is $8 and the new equilibrium quantity of 15 units. Therefore, the correct answer is 'Option D'.

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