Economics – The allocation of resources - Price determination | e-Consult

a) Calculation of Equilibrium: The equilibrium price is £3 and the equilibrium quantity is 6 units. This is where the quantity demanded equals the quantity supplied.

b) Impact of a Change in Consumer Income:

The impact of a change in consumer income on the demand for this craft depends on whether the craft is a normal good or an inferior good.

• Normal Good: If the craft is a normal good, an increase in consumer income will lead to an increase in demand. This is because consumers have more money to spend on discretionary items like crafts. An increase in demand will shift the demand curve to the right. This will result in a higher equilibrium price and a higher equilibrium quantity.
• Inferior Good: If the craft is an inferior good, an increase in consumer income will lead to a decrease in demand. This is because consumers will switch to higher-quality or more desirable goods. A decrease in demand will shift the demand curve to the left. This will result in a lower equilibrium price and a lower equilibrium quantity.

Without further information about the craft, it is impossible to definitively say whether it is a normal or inferior good. However, it is likely to be a normal good, meaning that an increase in consumer income would lead to an increase in both the equilibrium price and quantity.