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Supply & Demand Practice Question

By Mike Moffatt, About.com

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Supply & Demand Practice Question - Part B

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Supply & Demand - Part B

Illustrate each of the following events using a demand and supply diagram for bananas:

Consumers' income drop.

For most goods (known as "normal goods"), when people have less money to spend, they buy less of that good. Since consumers now have less money they're likely to buy less bananas. Thus the demand curve must shift down, as shown by the green line. Note that our equilibrium price is lower along with our equilibrium quantity. Our new equilibrium price is denoted by p*' and our new equilibrium quantity is denoted by q'*.

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