If consumer income decreases in a perfectly competitive dairy market, then both the market demand for milk and the equilibrium price will necessarily decrease, leading to lower output levels for individual firms. True or False?

The statement is generally true. When consumer income decreases, people have less money to spend, which often leads to a drop in demand for normal goods like milk. As the demand for milk decreases, the market demand curve shifts to the left, causing the equilibrium price of milk to fall. Lower prices mean that dairy firms earn less money, which can lead them to reduce their output levels since they may not be able to cover their costs as effectively. For example, if a family used to buy two gallons of milk a week but now only buys one because of less income, the overall demand for milk in the market decreases, impacting prices and production.