UPSC Previous Year Question | Prelims GS | 2021

Consider the following statements: 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

Correct Answer

1 and 4 only

Explanation

A rise in the price of a substitute shifts consumers towards the good, raising its demand (statement 1), and a fall in its own price raises the quantity demanded (statement 4). A rise in the price of a complement lowers demand (statement 2), and for an inferior good, higher consumer income reduces demand (statement 3).

Topics: demand analysis, determinants of market demand, economy, microeconomics