Question

Suppose the relationship between the price of a car and its quantity demanded, other things equal, is graphed as a downward-sloping straight line. Suppose the income of consumers increases and the demand for cars increases. What happens to the downward-sloping straight line when demand for cars increases owing to an increase in consumers' income ?

Short answer

The demand curve shifts to the right due to increased consumer income.

Step-by-step solution

Understand the Demand Line

The downward-sloping straight line in a demand curve illustrates the relationship between price and quantity demanded. As the price decreases, the quantity demanded increases and vice versa, assuming other factors are constant.

Effect of Increased Income on Demand

When consumers' income increases, they generally have more purchasing power. This typically leads to an increase in the demand for normal goods such as cars, meaning that at each price level, a higher quantity is demanded.

Shift in Demand Curve

With the increase in demand due to higher consumer income, the entire demand curve will shift to the right. This indicates a rise in quantity demanded at every price level without any change in the price itself.

Key concepts

Quantity Demanded

The quantity demanded refers to the specific amount of a good or service that consumers are willing and able to purchase at a given price point. It's an essential part of the demand curve concept in economics.
Understanding how consumers make decisions based on price helps clarify what quantity demanded means. A key assumption is that all other factors remain constant. In the context of a car market, if car prices drop, more consumers are likely to buy cars, thus increasing the quantity demanded. Conversely, if prices go up, fewer cars will be purchased.
Essentially, quantity demanded varies inversely with price: this is called the law of demand. It's usually represented graphically as a downward-sloping curve from left to right, showing that lower prices correspond to higher quantities demanded, illustrating a basic economic principle.

Consumer Income

Consumer income plays a vital role in influencing the demand for goods and services. When consumer income rises, people generally have more money to spend. This increase in disposable income often leads to an increase in demand for various products, particularly normal goods.
With cars as an example, as people's incomes rise, they are more capable of affording new vehicles, thus shifting the demand curve to the right. This shift means that at each price point, the quantity of cars demanded is higher.
It's important to note that this isn't just about budgeting for necessities; an increase in income can turn previous desires or non-urgent wants into actual purchases, enhancing overall demand even if the price remains unchanged.

Normal Goods

Normal goods are those whose demand increases when consumer incomes rise, and decreases when incomes fall. Cars typically fall into this category.
When considering normal goods, we assume that as people's financial situations improve, they are more inclined to purchase better quality or more diverse products. This is because these goods represent an improvement or enhancement in consumer lifestyle.
When it comes to economic analysis, distinguishing normal goods helps in understanding consumer spending behavior in response to income changes. As incomes increase, the demand for normal goods usually shifts rightward on the demand curve, reflecting increased consumer willingness and ability to purchase at various price levels.