Answer :

If the number of firms is fixed, when income of consumer will increase, the demand will also increase because the consumer would pay higher price but the supply will remain same, so there will be a rise in equilibrium price. As a result the demand curve will shift rightward. It will be true only in case of normal goods.


Suppose, the original equilibrium price was P at point E where, supply curve SS intersected with demand curve DD. With increase in income of consumer the demand curve shifted to D1D1 and as the supply is same so the equilibrium point shifted to E1 and thus the price rises to P1


If the number of firms is fixed, when there is decrease in consumer's income equilibrium price will decrease because the consumer would pay less due to less income. As a result the demand curve will shift leftward. It will be true only in case of normal goods.



Suppose, the original equilibrium price was P1 at point E1 where, supply curve SS intersected with demand curve D1D1. With decrease in income of consumer the demand curve shifted to DD and as the supply is same so the equilibrium point shifted to E and thus the price falls to P.


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