1. (10 points) True or false, and explain: Suppose that good x is a normal
good. If a consumer’s income increases, then that will cause a movement to a
new point on her ordinary demand curve, with a lower px and a higher quantity
of x.
Answer: False. It was speci…ed that income changed, not px. Rather than
moving to a new point on her ordinary demand curve, the increase in income
will shift the demand curve. There will be a horizontal movement from one
ordinary demand curve (corresponding to the original income) to another ordinary
demand curve (corresponding to the higher income), keeping px constant.
Because the good is normal, the demand curve will shift to the right.