Economics – The allocation of resources - Supply | e-Consult

Answer:

The effect of a change in consumer income on the quantity supplied of a good depends on whether the good is a normal good or a luxury good.

Normal Good: If the good is a normal good, an increase in consumer income will lead to an increase in the quantity supplied. This is because as consumers have more income, they are willing and able to purchase more of the good, leading to higher demand. Producers respond to this increased demand by increasing their supply. The supply curve will shift to the right.

Luxury Good: If the good is a luxury good, an increase in consumer income may lead to a smaller increase in the quantity supplied, or even no change. This is because luxury goods are discretionary purchases. As consumers have more income, they may choose to spend it on other things rather than on the luxury good. Therefore, the demand for the luxury good may not increase as much as the increase in income, resulting in a smaller shift in the supply curve.

The diagram shows a relatively inelastic supply curve. This suggests that the quantity supplied will not change significantly with changes in income, even if the good is a normal good. This could be due to factors such as long production lead times or limited availability of resources.