Question

Suppose that hot dogsarean inferiorgood. Suppose further that firms that sell hot dogs pay their workers the minimum wage. What would happen to the equilibrium price and quantity of hot dogssold if income rises, andthe minimum wage also risesat the same time? Explain.

Answer 1

Answer:

eq. quantity and eq. price decrease

Explanation:

If income rises, because hotdogs are inferior goods, the demand for them will decrease and if at the same time minimum wage increases, then costs of production will increase, and total supply will decrease. The change in demand is a shift to the left of the demand curve, and the change in supply is also a shift to the left of the supply curve.The figure attached shows this two changes, the result is a decrease in the equilibrium quantity and price of hotdogs.