Question

How will the equilibrium price (P*) and equilibrium quantity (Q*) of big-screen TVs be affected due to an increase in buyers’ income?

Group of answer choices

P* will decrease and Q* will decrease.

P* will increase and Q* will decrease.

P* will increase and Q* will increase.

P* will decrease and Q* will increase.

Answer 1

The equilibrium price and the equilibrium quantity of the big screen TVs will increase when there is an increase in the buyer’s income. An increase in the consumer’s income would give them the ability to purchase more which would lead to an increase in the demand. As HD or big screen TV’s mainly are a kind of luxury good, there will be a rightward shift in the demand curve. Huge demand would cause the sellers to increase the price. So, when the demand increases, it leads to an increase in the equilibrium price. Therefore, the equilibrium price (P) will increase and the equilibrium quantity (Q) will increase, which means that the 3rd option is the correct option.

1.The equilibrium price and quantity cannot decrease because here the consumer's income is increasing which will lead to an increase in the demand and further leading to an increase in the price.

2. The price definitely increases, but when there is an increase in the demand, so the second option is not the correct answer which says that the equilibrium quantity will decrease.

4. The quantity demanded when increases, the equilibrium price also increases. As the consumers are willing to purchase more, the suppliers will tend to increase the price in order to meet the high demand. Therefore this option which says that the equilibirum price decreases, is an invalid option.