Question

When Income increases, how are the following measures affected? (assume the following are in time order)

Choices are either A-Increase (right) B- Decrease (left) C- No effect D- unknown

Measures being affected... A, B, C, OR D

1. Firm Revenue

2. Firm Profits (assume proportionate costs)

3. Output supply shifts

4. Factor demand shifts

5. wages (income)

6. Economic (consumer) welfare

7. Output market price (after supply shift only)

Answer 1

1. When income increase A increase in firm revenue ​​​​​​, because it is a symbol of entering of money in firm.

2 When income increase A increase in firm profit.

• When income increase firm revenue increase then firm profit automatically increase.

3. When income increase B decrease( left) in output supply shift.

• When increase in income cause decrease in supply and supply curve shift to left.

4 When income increase A factor demand shift rightward

• For any price the quantities will be more or higher.

5. When income increase B wages ( income ) decrease because ,

• When income rises real wages fall and labor becomes cheaper.

6. When income increase A Economic ( consumer) welfare increase because,

• Both are directly related to each other and also both are measured in term of money.

7. When income increase A output market price increase because

• As income rises, quantity of demand decrease and output market price increase.