Effect of an increase in Income on Price and Quantity

• The principal non-Price determinants of Demand are:– Income– Price of substitutes– Price of complements– Tastes and Preferences

• Others include– Population– Expected future prices– Consumer confidence

• We look at the effect of an increase in Income on equilibrium Price and Quantity for a Normal good.

S

D0

Price

0Quantity

Q0

P0

Initial Equilibrium

S

D0

D1

Price

0Quantity

Q0 Q1

P0

P1

Final Equilibrium