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…

Question

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?

Aicharya · Accepted Answer

Demand increases when the price of a substitute rises (consumers shift to this good) — Statement 1 correct. Rise in complement's price reduces demand — Statement 2 incorrect. For inferior goods, demand falls when income rises — Statement 3 incorrect. A fall in own price increases quantity demanded — Statement 4 correct.

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

Solution