Question

Suppose that convection ovens are a normal good. Suppose that the income of households decrease, while at the same time there is a reduction in the cost of inputs for convection ovens. We would expect that the new equilibrium price of convection ovens will ________ while the new equilibrium quantity of convection ovens will ________.

Answer 1

Answer:

The correct answer is: increase, depend on the extent of change in demand and supply.

Explanation:

Suppose that the convection ovens are a normal good. A decrease in the income of the households will cause the demand for ovens to decrease. This will cause the demand curve to move to the left.

At the same time, a reduction in the cost of inputs for convection ovens will cause the cost of production to decline. As the cost of production gets reduced the supply will increase. This will cause the supply curve to shift to the right.

These changes in the demand and supply curve will cause a reduction in the equilibrium price level. Though the change in equilibrium quantity will depend upon the extent of change in demand and supply.