[Solved] 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 complements increase 3. The good is an inferior good and income of the consumer increases 4. Its price falls Which of the above statements are correct?

Q4. 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 complements increase

3. The good is an inferior good and income of the consumer 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

Answer: A

• One of the most fundamental ideas in economics is the law of demand. Itexplains how market economies distribute resources and set the prices of goods and services that we see in daily transactions by combining the law of supply.

• So Statement 1 is Correct:

• When the price of a substitute (a similar product that can be used in place of the good) increases, the demand for the original good may rise. Consumers may switch to the cheaper alternative, leading to higher demand for the original product.

• Inferior Goods and Income: Statement 3 is Incorrect:

• Inferior goods are those for which demand decreases as consumer income rises. If an inferior good’s price remains the same and consumers’ income increases, they may shift their preferences toward better-quality goods. As a result, the demand for the inferior good may decrease.

• Price Falls: Statement 4 is Correct:

• When the price of a good falls, consumers are more likely to buy it. Lower prices encourage higher demand.

• Complementary goods will have a negative cross elasticity of demand. If the price of one good increases, demand for both complementary goods will fall. Example, tea and sugar, fuel and vehicle. So, Statement 2 is incorrect.