If consumer income rises for a normal good, what happens to demand?

• A. Demand decreases.
• B. Demand increases, shifting the curve to the right; price and quantity rise if supply remains constant.
• C. Demand increases but price falls.
• D. Demand remains unchanged.

Answer: (B)

When income rises and the good is normal, people buy more of it, so the entire demand curve shifts to the right. With the demand curve higher and supply held constant, the market reaches a new equilibrium at a higher price and a higher quantity. This positive income effect is captured by a positive income elasticity of demand for normal goods. The other ideas—demand decreasing, or price falling with a rightward shift—don’t fit the behavior of normal goods under a rise in income, since higher income for a normal good increases desired purchases, not reduces them.