As a manager of a firm you have estimated that the demand fo

As a manager of a firm, you have estimated that the demand for the product the firm sells is $    Q ^D    = 1,800 – 5 P – 0.25 I, where P is the price of a unit of the firm\'s product and I is the average consumer income of the firm\'s customers. Currently, P = $80 and  I = $4,000.   Based on this information, then if the economy enters a recession and consumers\' incomes decrease

A)The demand curve for the firm\'s product will shift to the left

B)The quantity demanded of the firm\'s product at P = $80 will increase.

C)The income elasticity of demand will stay the same.

D)None of the above

Solution

Here demand is negatively related with income. If there is decrease in income of consumers, then there will increase in demand, which lead to rightward shift of demand curve.

If demand shift to the right, then at the p=$80 the demand will increase.

So, the correct answer is an option (B).