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Q34 (IAS/2021) Economy › Basic Concepts & National Income › Demand theory basics Official Key

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?

Result
Your answer: —  ·  Correct: A
Explanation

The correct answer is Option 1 (1 and 4 only). Market demand for a good increases due to the following reasons mentioned in the statements:

  • Statement 1 is correct: Substitutes are goods used in place of each other. If the price of a substitute (e.g., coffee) increases, consumers switch to the original good (e.g., tea), thereby increasing its market demand.
  • Statement 4 is correct: According to the Law of Demand, an inverse relationship exists between price and quantity demanded. Other things being equal, a fall in the price of a good leads to an increase in its demand.

Why other statements are incorrect:

  • Statement 2 is incorrect: Complements are used together (e.g., cars and petrol). If the price of a complement increases, the demand for the original good decreases.
  • Statement 3 is incorrect: For inferior goods, demand decreases as consumer income increases, as consumers shift toward superior or normal goods.
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Q. Consider the following statements : Other things remaining unchanged, market demand for a good might increase if 1. price of its substitu…
At a glance
Origin: Books + Current Affairs Fairness: Moderate fairness Books / CA: 5/10 · 5/10
Statement 1
Does an increase in the price of a substitute good, ceteris paribus, increase the market demand (shift the demand curve) for the original good?
Origin: Direct from books Fairness: Straightforward Book-answerable
From standard books
Microeconomics (NCERT class XII 2025 ed.) > Chapter 2: Theory of Consumer Behaviour > 2.4.5 Shifts in the Demand Curve > p. 25
Presence: 5/5
“If there is an increase in the price of a substitute good, the demand curve shifts rightward. On the other hand, if there is an increase in the price of a complementary good, the demand curve shifts leftward. The demand curve can also shift due to a change in the tastes and preferences of the consumer. If the consumer's preferences change in favour of a good, the demand curve for such a good shifts rightward. On the other hand, the demand curve shifts leftward due to an unfavourable change in the preferences of the consumer. The demand curve for ice-creams, for example, is likely to shift rightward in the summer because of preference for ice-creams goes up in summer.”
Why this source?
  • Directly asserts that an increase in the price of a substitute good causes the demand curve to shift rightward.
  • Provides the directional effect (rightward shift) under ceteris paribus conditions.
  • Contrasts substitute effect with complementary goods to clarify sign of the shift.
Microeconomics (NCERT class XII 2025 ed.) > Chapter 2: Theory of Consumer Behaviour > 2.4.6 Movements along the Demand Curve and Shifts in the Demand Curve > p. 26
Presence: 4/5
“As it has been noted earlier, the amount of a good that the consumer chooses depends on the price of the good, the prices of other goods, income of the consumer and her tastes and preferences. The demand function is a relation between the amount of the good and its price when other things remain unchanged. The demand curve is a graphical representation of the demand function. At higher prices, the demand is less, and at lower prices, the demand is more. Thus, any change in the price leads to movements along the demand curve. On the other hand, changes in any of the other things lead to a shift in the demand curve.”
Why this source?
  • States that the demand depends on prices of other goods and that changes in those prices lead to shifts in the demand curve.
  • Distinguishes shifts in the demand curve (caused by other factors) from movements along the curve (caused by own-price changes).
Statement 2
Does an increase in the price of a complement good, ceteris paribus, increase the market demand (shift the demand curve) for the original good?
Origin: Web / Current Affairs Fairness: CA heavy Web-answerable

Web source
Presence: 5/5
"A rise in the price of a substitute will boost the demand for the original good, while a rise in the price of a complement will lower demand."
Why this source?
  • Directly states the effect of a rise in the price of a complement on demand for the original good.
  • Explicitly indicates that a rise in the price of a complement lowers demand (opposite of an increase).
Web source
Presence: 4/5
"When we say that the demand curves shift to the right, it means that we have to change the numbers on the demand schedule. For the same prices, the quantities increase. This shifts the curve to the RIGHT."
Why this source?
  • Explains what a shift in the demand curve means (rightward shift = increase in demand).
  • Provides the framework to interpret 'lower demand' as a movement of the demand curve (opposite direction to a rightward shift).

Microeconomics (NCERT class XII 2025 ed.) > Chapter 2: Theory of Consumer Behaviour > 2.4.5 Shifts in the Demand Curve > p. 25
Strength: 5/5
“If there is an increase in the price of a substitute good, the demand curve shifts rightward. On the other hand, if there is an increase in the price of a complementary good, the demand curve shifts leftward. The demand curve can also shift due to a change in the tastes and preferences of the consumer. If the consumer's preferences change in favour of a good, the demand curve for such a good shifts rightward. On the other hand, the demand curve shifts leftward due to an unfavourable change in the preferences of the consumer. The demand curve for ice-creams, for example, is likely to shift rightward in the summer because of preference for ice-creams goes up in summer.”
Why relevant

States the general rule contrasting substitutes and complements: higher price of a substitute shifts demand right, higher price of a complementary good shifts demand left.

How to extend

A student can combine this rule with the definition of complements (goods used together) to infer that higher price of the complement reduces joint consumption and thus demand for the original.

Microeconomics (NCERT class XII 2025 ed.) > Chapter 2: Theory of Consumer Behaviour > 2.4.6 Movements along the Demand Curve and Shifts in the Demand Curve > p. 26
Strength: 4/5
“As it has been noted earlier, the amount of a good that the consumer chooses depends on the price of the good, the prices of other goods, income of the consumer and her tastes and preferences. The demand function is a relation between the amount of the good and its price when other things remain unchanged. The demand curve is a graphical representation of the demand function. At higher prices, the demand is less, and at lower prices, the demand is more. Thus, any change in the price leads to movements along the demand curve. On the other hand, changes in any of the other things lead to a shift in the demand curve.”
Why relevant

Gives the general principle that changes in prices of other goods (holding other things constant) cause shifts in the demand curve rather than movements along it.

How to extend

Use this to classify the price change of a complement as a cause of a demand-curve shift and then predict its direction using the complements/substitutes rule.

Microeconomics (NCERT class XII 2025 ed.) > Chapter 2: Theory of Consumer Behaviour > 2.5 MARKET DEMAND > p. 27
Strength: 4/5
“good, there are many consumers. It is important to find out the market demand for the good. The market demand for a good at a particular price is the total demand of all consumers taken together. The market demand for a good can be derived from the individual demand curves. Suppose there are only two The market demand curve of a good can also be derived from the individual demand curves graphically by adding up the individual demand curves horizontally as shown in Figure 2.18. This method of adding two curves is called horizontal summation.”
Why relevant

Explains market demand is horizontal summation of individual demands, so aggregate shifts reflect individual-level responses to other goods' price changes.

How to extend

A student can reason that if individuals reduce quantity demanded of the original good when its complement's price rises, the market demand curve will shift accordingly (leftward).

Microeconomics (NCERT class XII 2025 ed.) > Chapter 2: Theory of Consumer Behaviour > 2.6.3 Elasticity and Expenditure > p. 35
Strength: 3/5
“Calculate the price elasticity .• 23. Consider the demand curve D (p) = 10 3p. What is the elasticity at price 5 3 ?• 24. Suppose the price elasticity of demand for a good is – 0.2. If there is a 5 % increase in the price of the good, by what percentage will the demand for the good go down?• 25. Suppose the price elasticity of demand for a good is – 0.2. How will the expenditure on the good be affected if there is a 10 % increase in the price of the good?• 27. Suppose there was a 4 % decrease in the price of a good, and as a result, the expenditure on the good increased by 2 %.”
Why relevant

Discusses responsiveness (elasticity) of demand to price changes, showing that the magnitude of quantity response matters for expenditure and outcomes.

How to extend

Combine elasticity reasoning with the complement relationship to assess how strongly market demand for the original will fall when the complement's price rises.

Microeconomics (NCERT class XII 2025 ed.) > Chapter 5: Market Equilibrium > Demand Shift > p. 78
Strength: 3/5
“As the number of consumers increases, other factors remaining unchanged, at each price, more clothes will be demanded. Thus, the demand curve will shift rightwards. But this increase in the number of consumers does not have any impact on the supply curve since the supply curve may shift only due to changes in the parameters relating to firms' behaviour or with an increase in the number of firms, as stated in Chapter 4. This case again can be illustrated through Figure 5.2(a) in which the demand curve DD0 shifts rightward to DD2 , the supply curve remaining unchanged at SS0 .”
Why relevant

Shows that changes in population (or other demand shifters) shift the demand curve and that such shifts do not affect supply — clarifying what counts as a demand shifter.

How to extend

Use this pattern to treat a complement's price change as another demand shifter and then apply the complements rule to predict direction of the shift in market demand.

Statement 3
For an inferior good, does an increase in consumers' income, ceteris paribus, increase the market demand (shift the demand curve) for that good?
Origin: Web / Current Affairs Fairness: CA heavy Web-answerable

Web source
Presence: 5/5
""The term "inferior good" does not mean they are of low quality. the definition of an inferior good is one where if your income increases, demand decreases. There is an inverse relationship between income and demand.""
Why this source?
  • Explicitly defines inferior good by the relationship between income and demand.
  • States that when income increases, demand for an inferior good decreases (inverse relationship).
  • Directly implies that income increases do not increase market demand for inferior goods.
Web source
Presence: 4/5
""For superior goods, an income increase results in higher demand. For inferior goods, increased income leads to lower demand as consumers switch to superior""
Why this source?
  • States the comparative effect of income changes on superior vs. inferior goods.
  • Specifically says increased income leads to lower demand for inferior goods as consumers switch to superior goods.
Web source
Presence: 3/5
""If there is an increase in demand ( D) the demand curve moves to the RIGHT. ... When we say that the demand curves shift to the right, it means that we have to change the numbers on the demand schedule.""
Why this source?
  • Explains how changes in demand are represented as shifts of the demand curve.
  • Allows interpretation that a decrease in demand (from higher income for an inferior good) would shift the demand curve left.

Microeconomics (NCERT class XII 2025 ed.) > Chapter 2: Theory of Consumer Behaviour > 2.4.3 Normal and Inferior Goods > p. 24
Strength: 5/5
“Such goods are called normal goods. Thus, a consumer's demand for a normal good moves in the same direction as the income of the consumer. However, there are some goods the demands for which move in the opposite direction of the income of the consumer. Such goods are called inferior goods. As the income of the consumer increases, the demand for an inferior good falls, and as the income decreases, the demand for an inferior A rise in the purchasing power (income) of the consumer can sometimes induce the consumer to reduce the consumption of a good. In such a case, the substitution effect and the income effect will work in opposite directions.”
Why relevant

Gives the definition/rule that for inferior goods, demand moves opposite to income: as income increases, individual demand falls.

How to extend

A student can apply this individual-level rule to infer that if many consumers' incomes rise, individual downward responses would aggregate to lower market demand.

Microeconomics (NCERT class XII 2025 ed.) > Chapter 2: Theory of Consumer Behaviour > 2.4.5 Shifts in the Demand Curve > p. 25
Strength: 5/5
“The demand curve was drawn under the assumption that the consumer's income, the prices of other goods and the preferences of the consumer are given. What happens to the demand curve when any of these things changes? 25 Theory of Consumer Behaviour Given the prices of other goods and the preferences of a consumer, if the income increases, the demand for the good at each price changes, and hence, there is a shift in the demand curve. For normal goods, the demand curve shifts rightward and for inferior goods, the demand curve shifts leftward. Given the consumer's income and her preferences, if the price of a related good changes, the demand for a good at each level of its price changes, and hence, there is a shift in the demand curve.”
Why relevant

States that changes in income cause shifts in the demand curve and explicitly says normal goods shift right while inferior goods shift left when income rises.

How to extend

Use this rule to predict the direction of the market demand curve shift for an inferior good when incomes rise.

Microeconomics (NCERT class XII 2025 ed.) > Chapter 5: Market Equilibrium > Demand Shift > p. 77
Strength: 4/5
“But recall from Chapter 2 that the consumers will spend less on an inferior good with increase in income whereas for a normal good, with prices of all commodities and tastes and preferences of the consumers held constant, we would expect the demand for the good to increase at each price as a result of which the market demand curve will shift rightward. Here we consider the example of a normal good like clothes, the demand for which increases with increase in income of consumers, thereby causing a rightward shift in the demand curve. However, this income increase does not have any impact on”
Why relevant

Contrasts normal and inferior goods: normal-good demand increases with income (rightward shift), while consumers spend less on an inferior good as income increases.

How to extend

By contrasting normal and inferior cases, a student can reason that the income increase effect for inferiors is the reverse of the normal-good example shown.

Microeconomics (NCERT class XII 2025 ed.) > Chapter 2: Theory of Consumer Behaviour > 2.5 MARKET DEMAND > p. 27
Strength: 4/5
“good, there are many consumers. It is important to find out the market demand for the good. The market demand for a good at a particular price is the total demand of all consumers taken together. The market demand for a good can be derived from the individual demand curves. Suppose there are only two The market demand curve of a good can also be derived from the individual demand curves graphically by adding up the individual demand curves horizontally as shown in Figure 2.18. This method of adding two curves is called horizontal summation.”
Why relevant

Explains that market demand is the horizontal summation of individual demand curves.

How to extend

Combine this aggregation rule with the individual-level inferior-good response to conclude how individual decreases in demand would translate into a market-level shift.

Microeconomics (NCERT class XII 2025 ed.) > Chapter 2: Theory of Consumer Behaviour > 2.6.3 Elasticity and Expenditure > p. 33
Strength: 4/5
“33 Theory of Consumer Behaviour • • The consumer's preferences are assumed to be monotonic.• • An indifference curve is a locus of all points representing bundles among which the consumer is indifferent.• • Monotonicity of preferences implies that the indifference curve is downward sloping.• • A consumer's preferences, in general, can be represented by an indifference map.• • A consumer's preferences, in general, can also be represented by a utility function.• • A rational consumer always chooses her most preferred bundle from the budget set.• • The consumer's optimum bundle is located at the point of tangency between the budget line and an indifference curve.• • The consumer's demand curve gives the amount of the good that a consumer chooses at different levels of its price when the price of other goods, the consumer's income and her tastes and preferences remain unchanged.• • The demand curve is generally downward sloping.• • The demand for a normal good increases (decreases) with increase (decrease) in the consumer's income.• • The demand for an inferior good decreases (increases) as the income of the consumer increases (decreases).• • The market demand curve represents the demand of all consumers in the market Reprint 2025-26”
Why relevant

Summarises key properties: demand curve holds consumer income fixed; reiterates that demand for an inferior good decreases as income increases.

How to extend

Use this as a general reminder that income changes are a shift factor—so inferior-good income effects produce a leftward shift in demand curves.

Statement 4
Does a fall in a good's own price, ceteris paribus, increase the market demand (shift the demand curve) for that good rather than only increasing quantity demanded along the demand curve?
Origin: Direct from books Fairness: Straightforward Book-answerable
From standard books
Microeconomics (NCERT class XII 2025 ed.) > Chapter 2: Theory of Consumer Behaviour > 2.4.6 Movements along the Demand Curve and Shifts in the Demand Curve > p. 26
Presence: 5/5
“As it has been noted earlier, the amount of a good that the consumer chooses depends on the price of the good, the prices of other goods, income of the consumer and her tastes and preferences. The demand function is a relation between the amount of the good and its price when other things remain unchanged. The demand curve is a graphical representation of the demand function. At higher prices, the demand is less, and at lower prices, the demand is more. Thus, any change in the price leads to movements along the demand curve. On the other hand, changes in any of the other things lead to a shift in the demand curve.”
Why this source?
  • Directly states that any change in the price leads to movements along the demand curve.
  • Explicitly contrasts price changes (movements) with changes in other factors (which cause shifts).
Microeconomics (NCERT class XII 2025 ed.) > Chapter 2: Theory of Consumer Behaviour > 2.4.1 Demand Curve and the Law of Demand > p. 21
Presence: 5/5
“If the prices of other goods, the consumer's income and her tastes and preferences remain unchanged, the amount of a good that the consumer optimally chooses, becomes entirely dependent on its price. The relation between the consumer's optimal choice of the quantity of a good and its price is very important and this relation is called the demand function. Thus, the consumer's demand function for a good Demand Curve. The demand curve is a relation between the quantity of the good chosen by a consumer and the price of the good. The independent variable (price) is measured along the vertical axis and dependent variable (quantity) is measured along the horizontal axis.”
Why this source?
  • Defines the demand curve as the relation between quantity demanded and the good's own price when other factors remain unchanged (ceteris paribus).
  • By tying quantity chosen directly to price under ceteris paribus, it implies price changes produce changes in quantity demanded, not shifts.
Microeconomics (NCERT class XII 2025 ed.) > Chapter 2: Theory of Consumer Behaviour > 2.4.5 Shifts in the Demand Curve > p. 25
Presence: 4/5
“If there is an increase in the price of a substitute good, the demand curve shifts rightward. On the other hand, if there is an increase in the price of a complementary good, the demand curve shifts leftward. The demand curve can also shift due to a change in the tastes and preferences of the consumer. If the consumer's preferences change in favour of a good, the demand curve for such a good shifts rightward. On the other hand, the demand curve shifts leftward due to an unfavourable change in the preferences of the consumer. The demand curve for ice-creams, for example, is likely to shift rightward in the summer because of preference for ice-creams goes up in summer.”
Why this source?
  • Lists non-price factors (prices of substitutes/complements, tastes) that cause the demand curve to shift.
  • By enumerating shifting determinants other than the good's own price, it implies own-price changes do not shift the demand curve.
Pattern takeaway: UPSC Microeconomics questions are rare but strictly adhere to NCERT definitions. They often mix 'Shift factors' (Income, Related Prices) with 'Movement factors' (Own Price) to test clarity.
How you should have studied
  1. [THE VERDICT]: Sitter. Directly sourced from NCERT Class XII Microeconomics, Chapter 2 (Theory of Consumer Behaviour).
  2. [THE CONCEPTUAL TRIGGER]: Determinants of Demand: Price of related goods, Income, and Tastes vs. Own Price.
  3. [THE HORIZONTAL EXPANSION]: Memorize Cross-Elasticity signs: Substitutes = Positive, Complements = Negative. Memorize Income Elasticity: Normal = Positive, Inferior = Negative. Study Giffen Goods (upward sloping demand) and Veblen Goods (snob appeal).
  4. [THE STRATEGIC METACOGNITION]: Prioritize 'Directional Logic' over 'Technical Terminology'. Statements 2 and 3 are directionally impossible (Price of complement up ≠ Demand up). Eliminating these wrong statements solves the question instantly, bypassing the technical ambiguity in Statement 4.
Concept hooks from this question
📌 Adjacent topic to master
S1
👉 Substitute goods and demand shifts
💡 The insight

An increase in the price of a substitute raises demand for the original good, producing a rightward shift in its demand curve.

High-yield for comparative statics and equilibrium problems: knowing the cross-price relationship helps predict how prices and quantities change across related markets. Connects directly to cross-price elasticity, market interactions, and policy impact analysis.

📚 Reading List :
  • Microeconomics (NCERT class XII 2025 ed.) > Chapter 2: Theory of Consumer Behaviour > 2.4.5 Shifts in the Demand Curve > p. 25
🔗 Anchor: "Does an increase in the price of a substitute good, ceteris paribus, increase th..."
📌 Adjacent topic to master
S1
👉 Prices of other goods as determinants of demand
💡 The insight

Changes in prices of other goods are core determinants that, when altered, shift a good's demand curve rather than causing movements along it.

Essential for distinguishing causes of demand shifts versus movements; useful across questions on demand-supply shifts, market equilibrium, and welfare analysis. Enables correct diagrammatic reasoning and comparative-static answers.

📚 Reading List :
  • Microeconomics (NCERT class XII 2025 ed.) > Chapter 2: Theory of Consumer Behaviour > 2.4.6 Movements along the Demand Curve and Shifts in the Demand Curve > p. 26
🔗 Anchor: "Does an increase in the price of a substitute good, ceteris paribus, increase th..."
📌 Adjacent topic to master
S1
👉 Shifts versus movements along the demand curve
💡 The insight

Own-price changes cause movements along a demand curve, whereas changes in other factors (including other goods' prices) produce shifts of the entire curve.

Core conceptual distinction tested repeatedly in prelims and mains; mastering it allows precise answers to diagram-based questions, identification of causal factors, and clear policy implications.

📚 Reading List :
  • Microeconomics (NCERT class XII 2025 ed.) > Chapter 2: Theory of Consumer Behaviour > 2.4.6 Movements along the Demand Curve and Shifts in the Demand Curve > p. 26
  • Microeconomics (NCERT class XII 2025 ed.) > Chapter 2: Theory of Consumer Behaviour > 2.4.5 Shifts in the Demand Curve > p. 25
🔗 Anchor: "Does an increase in the price of a substitute good, ceteris paribus, increase th..."
📌 Adjacent topic to master
S2
👉 Complementary vs Substitute Goods
💡 The insight

An increase in the price of a complement reduces demand for the paired good, while an increase in the price of a substitute raises demand for the original good; this distinguishes the direction of demand shifts.

High-yield for comparative-static and consumer-behaviour questions; it ties directly into predicting demand shifts and equilibrium changes across related markets and helps answer policy or tax-impact problems where cross-good effects matter.

📚 Reading List :
  • Microeconomics (NCERT class XII 2025 ed.) > Chapter 2: Theory of Consumer Behaviour > 2.4.5 Shifts in the Demand Curve > p. 25
🔗 Anchor: "Does an increase in the price of a complement good, ceteris paribus, increase th..."
📌 Adjacent topic to master
S2
👉 Shift versus Movement Along the Demand Curve
💡 The insight

A change in the good's own price causes movement along the demand curve, whereas changes in prices of other goods, income, or tastes produce shifts of the entire demand curve.

Crucial to avoid conceptual errors in diagram-based questions and elasticity reasoning; it connects to market equilibrium analysis and clarifies when to redraw demand curves versus when to trace movements on them.

📚 Reading List :
  • Microeconomics (NCERT class XII 2025 ed.) > Chapter 2: Theory of Consumer Behaviour > 2.4.6 Movements along the Demand Curve and Shifts in the Demand Curve > p. 26
  • Microeconomics (NCERT class XII 2025 ed.) > Chapter 2: Theory of Consumer Behaviour > 2.6.3 Elasticity and Expenditure > p. 35
🔗 Anchor: "Does an increase in the price of a complement good, ceteris paribus, increase th..."
📌 Adjacent topic to master
S2
👉 Market Demand as Horizontal Summation
💡 The insight

Market demand is the horizontal sum of individual demands, so aggregate demand shifts when individual demands change (for example, due to changes in related-good prices or number of consumers).

Important for aggregate-level reasoning: it enables translating individual behavioural responses into market demand shifts, and is useful in questions about population changes, entry/exit of consumers, and overall equilibrium effects.

📚 Reading List :
  • Microeconomics (NCERT class XII 2025 ed.) > Chapter 2: Theory of Consumer Behaviour > 2.5 MARKET DEMAND > p. 27
  • Microeconomics (NCERT class XII 2025 ed.) > Chapter 5: Market Equilibrium > Demand Shift > p. 78
🔗 Anchor: "Does an increase in the price of a complement good, ceteris paribus, increase th..."
📌 Adjacent topic to master
S3
👉 Inferior vs Normal Goods (Income Effect)
💡 The insight

Inferior goods are those whose demand falls when consumer income rises, while normal goods see demand rise with income.

High-yield for consumer theory questions: explains how income changes alter individual and market demand via the income effect; connects to topics like consumer choice, welfare, and policy impacts on low-income households. Mastery lets you classify goods and predict demand-direction under income shifts.

📚 Reading List :
  • Microeconomics (NCERT class XII 2025 ed.) > Chapter 2: Theory of Consumer Behaviour > 2.4.3 Normal and Inferior Goods > p. 24
  • Microeconomics (NCERT class XII 2025 ed.) > Chapter 2: Theory of Consumer Behaviour > 2.6.3 Elasticity and Expenditure > p. 33
🔗 Anchor: "For an inferior good, does an increase in consumers' income, ceteris paribus, in..."
🌑 The Hidden Trap

The Giffen Good Paradox (NCERT p. 24-25). All Giffen goods are inferior, but not all inferior goods are Giffen. For Giffen goods, the negative income effect is so strong it outweighs the substitution effect, violating the Law of Demand.

⚡ Elimination Cheat Code

The 'Real World Substitution' Hack. For Statement 2: Replace 'complement' with 'Petrol' and 'good' with 'Car'. If Petrol price skyrockets, does Car demand increase? No. Statement 2 is False. Eliminate [B], [D]. For Statement 3: If you become a billionaire (Income up), do you buy more cheap ration rice (Inferior)? No. Statement 3 is False. Eliminate [C]. Answer is [A].

🔗 Mains Connection

GS-3 Inflation & Taxation: Understanding 'Elasticity' explains why Sin Taxes on tobacco (inelastic demand) generate revenue, while taxes on luxury goods (elastic demand) curb consumption. It also explains why MSP hikes (Price Floor) create surpluses.

✓ Thank you! We'll review this.

SIMILAR QUESTIONS

CDS-II · 2023 · Q3 Relevance score: 5.09

Other things remaining constant, the market supply for a good increases if: 1. its price increases. 2. price of its factors of production decreases. 3. price of other goods decreases.

CDS-II · 2014 · Q93 Relevance score: 4.85

Which of the. following statements is /are true ? 1. If increase in demand and supply are of equal magnitude, the price will remain unchanged, but the equilibrium quantity will increase. 2. If increase in demand is of greater magnitude than increase in supply, both equilibrium price and equili- brium quantity will increase. 3. If increase in supply is of greater . magnitude than increase in demand, equilibrium price will fall byt equilibrium quantity will increase. Select the correct answer using the code given below:

CDS-II · 2024 · Q25 Relevance score: 1.94

Suppose there are only two normal goods in the economy, X and Y. If price of good X increases, which would be the correct statement from below? (a) Demand for good X decreases and demand for Y indeterminate. (b) Demand for good X decreases and demand for Y decreases. (c) Demand for good X increases and demand for Y is indeterminate. (d) Demand for good X increases and demand for Y decreases.

IAS · 2012 · Q4 Relevance score: 0.89

Consider the following statements : The price of any currency in international market is decided by the 1. World Bank 2. Demand for goods/services provided by the country concerned 3. Stability of the government of the concerned country 4. Economic potential of the country in question Which of the statements given above are correct ?

CDS-I · 2019 · Q111 Relevance score: 0.66

Which one of the following is not an assumption in the law of demand?