UPSC Prelims 2021 · Question 4 of 97
UPSC Prelims 2021 question on Market Demand Determinants
- ExamUPSC CSE
- Year2021
- PaperGeneral Studies Paper I
- SubjectIndian Economy
- TopicImportant Economic Concepts
- DifficultyMedium
- TypeStatement
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?
Show answer
Answer: A. 1 and 4 only
Verdict
Correct statements: 1 and 4 → Option (a).
Analysis
Law of Demand: Other things being equal, there is a negative relation between demand for a commodity and its price.
Statement by statement
Statement 1 — CORRECT: Tea and coffee are substitutes. If the price of coffee increases, consumers shift to tea, so demand for tea rises. Demand for a good moves in the direction of the price of its substitute.
Statement 2 — INCORRECT: Tea and sugar are complements. An increase in the price of sugar reduces demand for tea. With an increase in price of complement, demand reduces.
Statement 3 — INCORRECT: For inferior goods (e.g., coarse cereals), as consumer income rises, demand falls, not rises.
Statement 4 — CORRECT: By the Law of Demand, when price of a commodity falls, demand for it rises.