Question 30

Both the equilibrium price and quantity of coffee will increase

An increase in the average income of consumers leads to a higher demand for normal goods such as coffee. As consumers have more disposable income, they are likely to purchase more coffee, resulting in an increase in both the equilibrium price and quantity.

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

This option is incorrect because an increase in consumer income generally leads to an increase in demand for normal goods, not a decrease. Therefore, it is unlikely that both the equilibrium price and quantity would decrease in this scenario.

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

This option is correct as it reflects the basic economic principle that an increase in consumer income leads to an increase in the demand for normal goods. As demand increases, sellers can raise prices, and the quantity supplied will also rise to meet the increased demand.

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

This option is incorrect because while the equilibrium quantity may indeed increase due to higher demand, the equilibrium price is expected to rise, not decrease. A rising demand with constant or limited supply typically leads to increased prices.

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

This option is incorrect as it suggests that while the price would increase due to higher demand, the quantity would decrease. In reality, an increase in demand typically results in an increase in both price and quantity, not a decrease in quantity.

Conclusion

The correct answer is B because it accurately describes the expected market reaction when consumer incomes rise and demand for coffee increases. All other options fail to recognize the fundamental relationship between income, demand, and equilibrium price and quantity in the market for normal goods.