Suppose the U.S. economy enters a recession and incomes fall. ...

[swpotter12]

Suppose the U.S. economy enters a recession and incomes fall. What will happen to the equilibrium prices and quantities of normal goods? Would your answer be the same if you were discussing inferior goods? Why or why not?
 
  What will be an ideal response?

Question 2

If marginal costs for a firm are constant would the average total cost curve still have be u-shaped? Explain.
 
  What will be an ideal response?

[meltdown117]

Answer to Question 1

If incomes fall, the demand for normal goods will fall as well. This means that the demand curve will shift to the left, lowering both the equilibrium price and equilibrium quantity. The answer would be opposite if we were discussing inferior goods. A decrease in income raises the demand for inferior goods, leading to a higher equilibrium price and quantity.

Answer to Question 2

If marginal costs are constant then the average total cost curve will be downward sloping. The only way that the average total cost curve could be u-shaped is if marginal cost eventually rises.

[swpotter12]

Correct answers!

[meltdown117]

Great! Please up vote