Question 19

Both the equilibrium price and quantity of coffee will increase

As coffee is classified as a normal good, an increase in average income will lead to higher demand for coffee. This increase in demand will consequently raise both the equilibrium price and quantity in the market.

A) Both the equilibrium price and quantity of coffee will increase

This option is correct because an increase in consumer income for a normal good like coffee typically results in increased demand. When demand rises, suppliers respond by raising prices and increasing the quantity supplied to meet this demand, thus leading to higher equilibrium price and quantity.

B) Both the equilibrium price and quantity of coffee will decrease

This option is incorrect as it contradicts the fundamental economic principle that an increase in income for a normal good leads to an increase in demand. A decrease in both price and quantity does not align with the expected market behavior in response to rising income levels.

C) The equilibrium price will decrease, and the equilibrium quantity will increase

This option is also incorrect. While it is true that the equilibrium quantity would increase due to higher demand, the equilibrium price would not decrease. Instead, it would rise as sellers increase prices to balance the heightened demand.

D) The equilibrium price will increase, and the equilibrium quantity will decrease

This option is incorrect because, while the equilibrium price is expected to increase with rising demand, the equilibrium quantity would not decrease. Higher demand would lead to an increase in quantity supplied to meet that demand, not a decrease.

Conclusion

In summary, the correct answer is that both the equilibrium price and quantity of coffee will increase due to the nature of coffee as a normal good. The other options fail to reflect the effects of increased income on demand, which is a key concept in understanding market dynamics for normal goods.