If the number of sellers in the market decreases and the consumers’ income increases (normal good), then what can we say with certainty?

Increase in equilibrium price

The correct answer is Option 2: Increase in equilibrium price

We are given two simultaneous changes in the market:

1. Decrease in the number of sellers → Supply decreases (leftward shift of the supply curve).
2. Increase in consumers' income (for a normal good) → Demand increases (rightward shift of the demand curve).

Impact on Equilibrium:

• Price Effect:

  • A decrease in supply raises prices.
  • An increase in demand also raises prices.
  • Since both shifts push the price up, the equilibrium price will certainly increase.

• Quantity Effect:

  • Decrease in supply (i.e. A leftward shift in supply) decreases equilibrium quantity
  • Increase in demand (A rightward shift in demand) tends to increase equilibrium quantity.
  • The net effect on quantity is uncertain because it depends on which shift is stronger.
  •       If demand increases more than supply decreases, quantity will rise.

  •       If supply decreases more than demand increases, quantity will fall.

  •       If both shifts are equal in magnitude, quantity remains unchanged.