AP Macroeconomics Question 321: Answer and Explanation

Test Information

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Question: 321

4. Suppose DVD players are a normal good and are exchanged in a competitive market. All else equal, an increase in household income will

  • A. increase the equilibrium quantity and increase the price.
  • B. decrease the equilibrium quantity and increase the price.
  • C. increase the equilibrium price, but the change in quantity is ambiguous.
  • D. decrease the equilibrium quantity and decrease the price.
  • E. increase the equilibrium quantity but the change in price is ambiguous.

Correct Answer: A

Explanation:

A-If DVDs are normal goods, an increase in household income increases demand for DVDs, which increases quantity and price. Even though this is a macroeconomics exam, be prepared for simple supply and demand questions to test your understanding of markets.