A Recession Hits a Normal Good
Falling income shifts demand for a normal good left, so price and quantity both fall.
A Recession Hits a Normal Good
Supply and DemandFalling income shifts demand for a normal good left, so price and quantity both fall.
Equilibrium at Quantity 57, Price ($) 44
Start in equilibrium
The market for restaurant meals begins in equilibrium.
Now try it yourself: shift the curves in a graded FRQ drill, or open this graph in the free sandbox.
A Recession Hits a Normal Good, step by step
- 1
Start in equilibrium
The market for restaurant meals begins in equilibrium.
- 2
Incomes fall
A recession cuts household incomes. Restaurant meals are a normal good, so at every price people buy fewer of them. Demand shifts left.
- 3
A surplus appears
At the old price restaurants are still offering the same number of covers while fewer diners want them. The surplus forces prices, and eventually discounting, downward.
- 4
New equilibrium
The market settles at a lower price and a lower quantity. Note that supply never moved: restaurants are not less willing to cook, they are moving down ALONG their supply curve as the price falls.
Where it ends up
For a normal good, falling income shifts demand LEFT, lowering both price and quantity.
Now draw it yourself
Same graph, graded on whether you move the right curve and leave the rest alone.
More Supply and Demand walkthroughs
Last updated