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 statements given above is/are correct?

QUESTION

Easy

Economy

Prelims 2021

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

Price of its substitute increases
Price of its complement increases
The good is an inferior good and income of the consumers increases
Its price falls

Which of the statements given above is/are correct?

Select an option to attempt

Explanation

1. Price of Substitute Increases: When the price of a substitute good goes up, consumers may switch to the original good as a more affordable alternative. This increases demand for the original good.

2. Price of Complement Increases: In some cases, an increase in the price of a complementary good can lead to a decrease in demand for the original good (e.g., bread and butter). However, this isn't always the case.

3. Inferior Good and Income Increase: If the good is inferior (a good for which demand decreases as income rises), then an increase in income will lead to a decrease in demand for that good, not an increase.

4. Price Falls: According to the law of demand, when the price of a good falls, consumers tend to buy more of it, assuming other factors remain constant. This is because the goods become more affordable.

Therefore, the correct code is 1 and 4 only.

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