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IAI Actuarial Core Principles · Business Economics · How competitive markets operate

A consumer buys fewer units of a good when its price rises, while income, tastes and the prices of related goods stay unchanged. In demand analysis, this response is best described as:

The response is a movement up along the existing demand curve (a contraction in quantity demanded). The good's own price is the only variable that changed, and other determinants are constant, so the demand curve itself does not shift.

  1. AA leftward shift of the demand curve
  2. BA movement up along the existing demand curveCorrect
  3. CA rightward shift of the supply curve
  4. DA rise in the consumer's real income causing an inferior-good effect
  5. A change in tastes against the good

Explanation

When only the good's own price changes, with all other determinants held constant, the quantity demanded changes along the same demand curve. A shift of the curve would need a change in a non-price determinant such as income or tastes. Hence the leftward shift option is wrong.

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