Question

Consider the market for restaurant meals. Illustrate graphically how an increase in income would affect the restaurant meal market.

Answer 1

Restaurant meals are a normal good.

In case of normal good, increase in income leads to increase in demand and decrease in income leads to decrease in demand.

It has been given that there is an increase in income.

So, this increase in income will result in an increase in demand for restaurant meals.

This will shift the demand for restaurant meals to the right.

Following is the required figure -

Initially, the market for restaurant meals was in equilibrium at point E. The equilibrium price was P per meal and the equilibrium quantity is Q meals.

Now, with increase in income, demand for restaurant meals have increased.

This increase in demand for restaurant meals will shift the demand curve for restaurant meals to the right from D to D1.

New equilibrium is attained at point E1. The new equilibrium price is P1 per meal and new equilibrium quantity is Q1 meals.

Thus,

An increase in income has resulted in an increase in price of meals and quantity of meals in the restaurant meal market.