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Effect of an increase in Income on Price and Quantity

Effect of an increase in Income on Price and Quantity. The principal non-Price determinants of Demand are: Income Price of substitutes Price of complements Tastes and Preferences Others include Population Expected future prices Consumer confidence

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Effect of an increase in Income on Price and Quantity

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  1. Effect of an increase in Income on Price and Quantity • The principal non-Price determinants of Demand are: • Income • Price of substitutes • Price of complements • Tastes and Preferences • Others include • Population • Expected future prices • Consumer confidence • We look at the effect of an increase in Income on equilibrium Price and Quantity for a Normal good.

  2. Initial Equilibrium Price S P0 D0 Q0 0 Quantity

  3. Final Equilibrium Price S P1 P0 D1 D0 Q0 Q1 0 Quantity

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