Assuming all other factors remain constant, if the income of milk buyers increases, what will happen to the equilibrium price and quantity of milk?

Choose 1 answer:
(A) Price will increase, but we cannot determine what happens to quantity
(B) Price will increase and quantity will decrease
(c) Price will decrease and quantity will decrease
(D) Price will decrease and quantity will increase
(E) We cannot determine what happens to price, but quantity will increase

Question

Assuming all other factors remain constant, if the income of milk buyers increases, what will happen to the equilibrium price and quantity of milk?

Choose 1 answer:
(A) Price will increase, but we cannot determine what happens to quantity
(B) Price will increase and quantity will decrease
(c) Price will decrease and quantity will decrease
(D) Price will decrease and quantity will increase
(E) We cannot determine what happens to price, but quantity will increase

Accepted Answer

∻Solution∻ ‖ a ⋮ Demand Increase: When the income of milk buyers increases, the demand for milk typically increases because milk is a normal good. This is represented by a rightward shift in the demand curve. ‖ ‖ b ⋮ Equilibrium Price: The increase in demand leads to a higher equilibrium price as the new demand curve intersects the supply curve at a higher price level. ‖ ‖ c ⋮ Equilibrium Quantity: The increase in demand also results in a higher equilibrium quantity as the new demand curve intersects the supply curve at a higher quantity level. ‖ ∻Answer∻ ⚹ (A) Price will increase, but we cannot determine what happens to quantity ⚹ ∻Key Concept∻ ⚹ Income Effect on Normal Goods ⚹ ∻Explanation∻ ⚹ When the income of buyers increases, the demand for normal goods like milk increases, leading to a higher equilibrium price. The exact change in quantity depends on the elasticity of supply and demand. ⚹◊What impact would an increase in income for milk buyers have on the equilibrium price and quantity of milk in the market?⍭ Generate me a similar question◊

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