Consider the following statements: Other things remaining unchanged, market demand for a good might increase if

Q4. Consider the following statements: (UPSC CSE 2021)

Other things remaining unchanged, market demand for a good might increase if

1. price of its substitute increases
2. price of its complement increases
3. the good is an inferior good and income of the consumers increases
4. its price falls

Which of the above statements are correct?     

1. 1 and 4 only
2. 2, 3 and 4
3. 1, 3 and 4
4. 1, 2 and 3

Answer: A

Explanation

• Statement 1 is correct: When the price of a substitute rises, consumers tend to shift away from the relatively costlier substitute and increase consumption of the given good, leading to a rise in its market demand.
• Statement 2 is incorrect.: An increase in the price of a complementary good reduces the joint consumption of both goods, thereby decreasing the demand for the given good rather than increasing it.
• Statement 3 is incorrect.: In the case of an inferior good, an increase in consumers’ income leads to a decline in its demand as consumers shift towards superior goods.
• Statement 4 is correct: As per the law of demand, a fall in the price of a good results in an increase in quantity demanded, which increases its market demand.

Topic: Basics of Economy

Sharing is caring!