Suppose that the income of buyers in a market increases and a technological adva

Question

Suppose that the income of buyers in a market increases and a technological advancement also occurs. What would we expect to happen in the market for a normal good? The equilibrium price would increase, but the impact on the amount sold in the market would be ambiguous. The equilibrium price would decrease, but the impact on the amount sold in the market would be ambiguous. Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous. Both equilibrium price and equilibrium quantity would increase.

Explanation / Answer

The correct answer is option C.

When the income of the buyers increases, the budget line shift outwards to right parallely. More income means sure shot increase in consumption of both goods.So the equilibrium quantity would increase. However, any technological advancement may or may not decrease/increase the price. So change of price and the direction is indeterminate.

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