An increase in consumer income increases the demand for automobiles. As a result of the adjustment to a new equilibrium, there is a(n):A.leftward shift of the supply curve.B.upward movement along the supply curve.C.downward movement along the supply curve.D.rightward shift of the supply curve.E.no change in the graph.
Question
An increase in consumer income increases the demand for automobiles. As a result of the adjustment to a new equilibrium, there is a(n):A.leftward shift of the supply curve.B.upward movement along the supply curve.C.downward movement along the supply curve.D.rightward shift of the supply curve.E.no change in the graph.
Solution
The answer is B. upward movement along the supply curve. Here's why:
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An increase in consumer income means that consumers have more money to spend. This increases their purchasing power.
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When purchasing power increases, the demand for normal goods, like automobiles, also increases. This is represented by a rightward shift of the demand curve in a supply-demand graph.
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When the demand increases, suppliers can charge more for their goods because consumers are willing to pay more. This is known as the law of supply.
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Therefore, there is an upward movement along the supply curve as suppliers increase their prices in response to increased demand. This new point on the supply curve is the new equilibrium.
So, the increase in consumer income leads to an upward movement along the supply curve, not a shift of the supply curve. A shift in the supply curve would indicate a change in the supply of automobiles, not a change in the price of automobiles due to increased demand.
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