Illustrating graphically and specifying the assumptions upon which your reasoning is based describe briefly
The effects on price and output of oranges of an increase in consumers income,show graph
To illustrate the effects on price and output of oranges due to an increase in consumers' income, let's assume the following assumptions:
1. Perfect competition: We are assuming that the market for oranges operates under perfect competition, where there are numerous buyers and sellers, and no individual player can influence the market price.
2. Normal goods: Oranges are considered normal goods, meaning that as consumers' income increases, the demand for oranges will also increase.
Now, let's describe the graphical representation:
1. Demand curve: We will have a downward-sloping demand curve for oranges, indicating that as the market price decreases, the quantity demanded increases. This demand curve represents the initial state before the increase in consumers' income.
2. Supply curve: We will have an upward-sloping supply curve for oranges, indicating that as the market price increases, the quantity supplied also increases. This supply curve represents the initial state before the increase in consumers' income.
3. Equilibrium: The intersection of the demand and supply curves represents the market equilibrium, where the quantity demanded equals the quantity supplied, and the market price is determined.
Now, let's analyze the effects of an increase in consumers' income:
4. Increase in income: When consumers' income increases, the demand for oranges will increase. This will cause the demand curve to shift to the right, indicating a higher quantity demanded at each price level.
5. New equilibrium: The shift in the demand curve will create a new market equilibrium, where the quantity demanded exceeds the quantity supplied. As a result, the market price of oranges will increase, reflecting the increased demand.
6. Increase in output: As the market price of oranges increases, it creates an incentive for orange producers to increase their output. This will result in a movement along the supply curve to a higher quantity supplied, which helps to meet the increased demand.
Therefore, as a result of an increase in consumers' income, the price of oranges will rise, and the output of oranges will increase. This can be visually represented by a rightward shift in the demand curve and a movement along the supply curve, leading to a new equilibrium point with higher price and higher output.