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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
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?
- a)1 and 4 only
- b)2, 3 and 4
- c)1, 3 and 4
- d)1, 2 and 3
Correct answer is option 'A'. Can you explain this answer?
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Verified Answer
Consider the following statements:Other things remaining unchanged, ma...
Two goods are substitutes if using more of good A replaces the use of good B. For example, if the price of coffee increases, the quantity demanded for tea (a substitute beverage) increases as consumers switch to a less expensive yet substitutable alternative. So, statement 1 is correct.
Two goods are complementary if using more of good A requires the use of more good B. For example, if the price of coffee increases, the quantity demanded for coffee stir sticks drops as consumers are drinking less coffee and need to purchase fewer sticks. So, statement 2 is not correct.
An inferior good is an economic term that describes a good whose demand drops when people's incomes rise. These goods fall out of favor as incomes and the economy improve as consumers begin buying more costly substitutes instead. So, statement 3 is not correct.
Therefore, the correct answer is (a).
Most Upvoted Answer
Consider the following statements:Other things remaining unchanged, ma...
Explanation:
To determine which statements are correct, let's analyze each statement one by one:
Statement 1: Price of its substitute increases
When the price of a substitute for a good increases, consumers tend to switch to the original good, leading to an increase in demand for the original good. This is because the substitute has become relatively more expensive compared to the original good, making the original good more attractive to consumers. Therefore, statement 1 is correct.
Statement 2: Price of its complement increases
When the price of a complement for a good increases, consumers may be discouraged from purchasing both goods together. This can lead to a decrease in demand for the good. Therefore, statement 2 is incorrect.
Statement 3: The good is an inferior good and income of the consumers increases
Inferior goods are goods for which demand decreases as income increases. If the good is an inferior good and the income of consumers increases, the demand for the inferior good will decrease. Therefore, statement 3 is incorrect.
Statement 4: Its price falls
When the price of a good falls, consumers are more likely to purchase the good as it becomes relatively cheaper compared to other goods. This leads to an increase in demand for the good. Therefore, statement 4 is correct.
Conclusion:
Based on the analysis above, the correct statements are:
1) Price of its substitute increases
4) Its price falls
Therefore, the correct answer is option A) 1 and 4 only.
To determine which statements are correct, let's analyze each statement one by one:
Statement 1: Price of its substitute increases
When the price of a substitute for a good increases, consumers tend to switch to the original good, leading to an increase in demand for the original good. This is because the substitute has become relatively more expensive compared to the original good, making the original good more attractive to consumers. Therefore, statement 1 is correct.
Statement 2: Price of its complement increases
When the price of a complement for a good increases, consumers may be discouraged from purchasing both goods together. This can lead to a decrease in demand for the good. Therefore, statement 2 is incorrect.
Statement 3: The good is an inferior good and income of the consumers increases
Inferior goods are goods for which demand decreases as income increases. If the good is an inferior good and the income of consumers increases, the demand for the inferior good will decrease. Therefore, statement 3 is incorrect.
Statement 4: Its price falls
When the price of a good falls, consumers are more likely to purchase the good as it becomes relatively cheaper compared to other goods. This leads to an increase in demand for the good. Therefore, statement 4 is correct.
Conclusion:
Based on the analysis above, the correct statements are:
1) Price of its substitute increases
4) Its price falls
Therefore, the correct answer is option A) 1 and 4 only.
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Consider the following statements:Other things remaining unchanged, ma...
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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 fallsWhich of the above statements are correct?a)1 and 4 onlyb)2, 3 and 4c)1, 3 and 4d)1, 2 and 3Correct answer is option 'A'. Can you explain this answer?
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