If Good a Is a Normal Good and Income Increases

question 290

Multiple Choice

If good A is a normal good and income increases, the equilibrium price of A ________ and the equilibrium quantity of A ________.

• A) rises; increases
• B) rises; decreases
• C) falls; decreases
• D) falls; increases

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Definitions:

Deadweight Losses

Deadweight losses occur in an economy when the total welfare is not maximized, often resulting from inefficiencies such as taxes, subsidies, price controls, or monopolistic market practices.

Consumer Surplus

The divergence between what consumers are able and willing to shell out for a product or service and the actual cost they incur.

Marginal Benefit

The uplift in satisfaction or value derived from the consumption of an additional unit of a product or service.

Marginal Cost

An additional expense incurred from the production or acquisition of one more unit of a good or service.