GENERAL KNOWLEDGE

A RISE IN INCOME WILL, CETERIS PARIBUS, BRING ABOUT

  • A. a movement along the demand curve
  • B. a leftward shift of the demand curve
  • C. a rightward shift of the demand curve ✓
  • D. no effect on the demand curve

 

The answer to the question is: C. a rightward shift of the demand curve

A rise in income, ceteris paribus, will bring about a rightward shift of the demand curve. This is because an increase in income leads to an increase in the quantity demanded for most goods and services. When consumers’ incomes rise, they are able to afford more goods and services at each price level. As a result, the demand curve shifts to the right, indicating an increase in demand at every price. This concept is known as the income effect in economics.

When there is a rise in income, consumers’ purchasing power increases, leading to a higher demand for goods and services. This phenomenon is particularly evident for normal goods, which are goods for which demand increases as consumer income rises. For example, if a consumer’s income increases, they may choose to purchase a better quality of goods or more quantity of goods at each price level. As a result, the demand curve for normal goods shifts to the right.

On the other hand, for inferior goods (goods for which demand decreases as consumer income rises), a rise in income would lead to a decrease in demand. In this case, the demand curve would shift to the left.

In summary, when there is a rise in income, ceteris paribus (all other factors remaining constant), it leads to a rightward shift of the demand curve for normal goods and a leftward shift for inferior goods.

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