UPSC Prelims 2021 Q4: Indian Economy – National Income & Economic Growth
- (a) 1 and 4 only
- (b) 2, 3 and 4
- (c) 1, 3 and 4
- (d) 1, 2 and 3
Answer: (a) 1 and 4 only
Explanation
Market Demand: What Makes It Rise?
| Factor | Effect on Demand for Good X | Explanation |
|---|---|---|
| Price of substitute rises | Demand for X RISES | Consumers switch AWAY from costlier substitute TO X (e.g. Pepsi price rises, Coke demand rises). |
| Price of complement rises | Demand for X FALLS | Complements are consumed together. If car prices rise, petrol demand falls. |
| Inferior good + income rises | Demand for X FALLS | Inferior goods (bajra, second-hand items) see demand fall as income rises. Consumers shift to superior goods. |
| Own price falls | Demand for X RISES | Law of Demand: quantity demanded rises as price falls (movement along the demand curve). |
Statements 1 and 4 increase demand. Statements 2 and 3 decrease it. Answer: 1 and 4 only.
Answer: (a) 1 and 4 only.
Why each option is right or wrong
- (a) CORRECT. Only statements 1 (substitute price rises - consumers shift TO good X) and 4 (own price falls - Law of Demand) increase demand for good X.
- (b) Incorrect. Statement 2 (complement price rises) DECREASES demand. Statement 3 (inferior good + rising income) DECREASES demand.
- (c) Incorrect. Statement 3 wrongly claims rising income raises demand for an INFERIOR good - it actually falls.
- (d) Incorrect. Both statements 2 and 3 decrease demand, not increase it.
Key point
Substitute price up = my demand UP. Complement price up = my demand DOWN. Inferior good + income up = demand DOWN. Only 1 and 4 raise demand for good X.
Remember
Market demand for good X rises when (1) price of its substitute rises - consumers switch to X; and (4) its own price falls - Law of Demand. It falls when complement price rises or when it is an inferior good and income rises.
Common mistakes
- Confusing substitute and complement effects. Substitute price rise HELPS my sales; complement price rise HURTS my sales.
- Confusing normal and inferior goods. Normal goods: demand rises with income. Inferior goods: demand FALLS with income (example: bajra, second-hand bicycles).
- Confusing change in demand (shift of curve) with change in quantity demanded (movement along curve). Own-price change causes movement along the same curve.
Exam tip
Substitutes = SAME direction. Complements = OPPOSITE direction. If Uber prices rise, Ola demand rises (substitute); if car prices rise, petrol demand falls (complement). Memorise the four demand shifters: income, taste, expectations, prices of related goods.
Sources
- NCERT Class XII Microeconomics - Chapter 2: Theory of Consumer Behaviour
- NCERT Class XII Introductory Microeconomics - Demand Analysis