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 and 4 only

2, 3 and 4

1, 3 and 4

1, 2 and 3

APEDIA

UPSC Prelims

2021 • 10 Oct, 2021 • Paper-1

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?

Correct Answer

1 and 4 only

Substitute Dynamics: If the price of a substitute rises, consumers naturally shift their preference to the relatively cheaper alternative, increasing its demand......

💡 Analysis & Explanation

Substitute Dynamics ▼

If the price of a substitute rises, consumers naturally shift their preference to the relatively cheaper alternative, increasing its demand. Thus, point 1 is valid.

Complementary Effects ▼

If a complementary good's price goes up, the overall cost of consuming the bundle increases, leading to a drop in demand for both goods. Hence, point 2 is incorrect.

Income Factors ▼

For an inferior good, an increase in consumer income typically leads to a decrease in demand, as buyers upgrade to higher-quality alternatives. Therefore, point 3 is incorrect.

Price Elasticity ▼

According to the law of demand, a fall in the price of a product generally results in an expansion of the quantity demanded (often broadly termed as an increase in demand in basic multiple-choice contexts). Thus, point 4 is considered valid here.

Conclusion ▼

Points 1 and 4 correctly describe conditions that lead to higher demand.

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