Consider the market for coffee, where the demand and supply equations are given by: Demand: Qd = 200 - 3P, Supply: Qs = 20 + 2P. How does an increase in consumer income affect the demand for coffee?

Question

Increases demand
Decreases demand
No effect on demand
Causes a movement along the demand curve

Answer 1

Increases demand

When consumer income increases, consumers are able and willing to buy more coffee at every given price level. This shifts the demand curve to the right, increasing the quantity demanded at every price level.