Question

Consider the market for home espresso machines (a normal good) at right Suppose consumer income ncreases and the wage of espresso machine factory workers increases Use the line drawing tool to show the effect of the above shocks on the market for espresso machines Property label any lines you draw Carefuly folow the instructions above, and only araw ne requred obects Assuming the magnitude of the shifts is unknown, which of the tollowing is true? O A. Both the equlibium price and quantity wa increase O B. The eqabnum price wงเ increase, but the effect on euitrum quantity is unclear O C. The equibrium quantity will increase, but the effect on equibrium price is uncea O D. Both the equaibrium price and quantity will decrease O E. None of the above are true

Answer 1

When Consumers' income increases, the demand for espresso machines increases. Also, when the wage of espresso machine factory workers increases, the supply of espresso machines falls due to increased input prices. Thus, demand increases and supply falls. The below three diagrams explains the scenario when increase in demand is more than decrease in supply, increase in demand is less than and it's equal to decrease in supply respectively. \r\n Thus, the price is always increasing however the quantity is increasing or decreasing depending on whether the change in demand is dominant or the change in supply. Thus, correct answer is option B: The equilibrium price will increase but the effect on equilibrium quantity is unclear.