Consider the following statements:
Other things remaining unchanged, market demand for a good might increase if
1. The price of its substitute increases
2. The price of its complement increases
3. The good is an inferior good and the income of the consumers increases
4. Its price falls
Which of the above statements is correct?
(a) 1 and 4 only
(b) 2, 3 and 4
(c) 1, 3 and 4
(d) 1, 2 and 3
Answer: a
Explanation:
Demand represents the whole demand schedule and shows how price of a good is relatable to quantity which the consumers are willing or able to buy, other factors which determine demand held constant.
Change in demand for a commodity occurs when there is a change in the factors other than prices namely:
- Income of consumer increases
- Preferences of the people for a commodity increase.
- Expectations about future prices that a commodity price may increase in future.
- The price of related commodities, such as substitutes and complements, also changes the demand for a commodity.
Example: If the price of coffee rises, other factors remaining constant, this will cause the demand for tea.
Hence, option a is correct.
Read: Solved Economy PYQs With Explanation 2021 UPSC Prelims