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Higher income raises the quantity of automobiles that consumers want to buy at every given price. For a normal good like cars, what does this do to the demand curve?
AShifts the demand curve to the left
BShifts the demand curve to the right
CProduces a movement down along the demand curve
DProduces a movement up along the demand curve
Answer & Solution
Correct answer: B. Shifts the demand curve to the right
1. Income is a determinant of demand other than price, so a change in income shifts the whole curve.
2. Higher income raises the quantity buyers want at every price, not just at one price.
3. A curve that shows a higher quantity at every price has shifted to the right.
4. Options C and D describe movement along a curve, which only happens from a price change, not an income change.
_Source: OpenStax Principles of Macroeconomics for AP Courses (CC BY 4.0), Ch 3 "Demand and Supply", section 3.2 | Shifts in Demand and Supply for Goods and Services_
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