Question

Suppose the market for coffee is in equilibrium. Explain (using graphs) what would happen to the equilibrium price and equilibrium quantity of coffee in each of the following scenarios. Please place your final equilibrium effects on price and quantity in the SNoodle box below (Ge,just say Equilibrium price increase/decreased etc and equilibrium quantity increased/decreased etc.). Be sure to put your graphical analysis on your scratch paper to be turned in. Credit will be given not only for the correct answers, but the correct graphical depiction (Gie. label everything and indicate direction of shity Suppose coffee is an inferior good, what happens to equilbrium price and equilibrium quantity f there s an increase in consumer income? While some would not consider coffee an inferior good, can you provide an additional example of a good that could be considered inferior?

Answer 1

As we know that as income of an individual increases demand for an inferior good decreases. Opposite to what is experienced in case of normal good, where demand of a product increases when income increases.

Another example of inferior good may be cycle. When income of an individual rises he prefers to buy car rather than a cycle to commute.

The above graph represents market equilibrium of coffee. S is the supply curve of the coffee is D_0 is the initial Demand of coffee when income of the individual rises. 2ts demand curve shifts to the left to D_1. As a result, Equilibrium price and quality both falls.

Few other examples are rice, potato, public transport.