Prelims 2021 · Economy · Question 4
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 above statements are correct?
Answer
1 and 4 only
1. Price of its substitute increases — Correct. When a substitute becomes costlier, consumers shift to this good, so demand increases.
2. Price of its complement increases — Incorrect. Complements are used together; if the complement becomes costlier, demand for this good usually falls.
3. The good is an inferior good and income of consumers increases — Incorrect. For an inferior good, higher income makes consumers buy less, not more.
4. Its price falls — Correct. A fall in the good's own price causes an increase in quantity demanded; in such UPSC questions this is often treated as increase in market demand.
Hence, the correct statements are 1 and 4 only.