Micro Foundations · intro
What moves on the Supply & Demand diagram
Higher incomes raise demand for a normal good at every price, shifting demand right and moving equilibriumequilibriumThe point where opposing forces balance, quantity supplied equals quantity demanded, so there's no pressure for price to change. up along the unchanged supply curve to a higher price and quantity.
EquilibriumequilibriumThe point where opposing forces balance, quantity supplied equals quantity demanded, so there's no pressure for price to change. sits where the curves cross: one price where buyers and sellers agree.
A sustained period of wage growth leaves households with more to spend.
For a normal good, demand shifts right: buyers want more at every price.
Price and quantity both rise. Note that supply did not move, the market simply slid up along the existing supply curve.
Examiners ask this as: incomes rise, normal good, demand increases, wage growth, more buyers.
Other scenarios on Supply & Demand