Question:
The market equilibrium price could rise from P1 to P2 if
(1) consumers’ incomes increased.
(2) the price of a complementary product increased.
(3) cost of production was substantially lowered.
(4) subsidies on the product increased.
(5) price P2 were set as a legally maximum price.
Correct Answer:
(1)
Answer Explanation:
A natural increase in equilibrium price requires either the demand curve to shift to the right or the supply curve to shift to the left. Because the text specifies this is a “normal good,” an “increase in consumers’ incomes” will directly cause demand to rise (shift right), pulling the equilibrium price higher.
Topic: Market Equilibrium Year: 2019
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