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CMA Foundation · Fundamentals of Business Economics and Management · Theory of Demand and Supply

A firm's demand schedule for a product at a price of ₹50 shows 200 units demanded. Later, due to a rise in consumers' incomes, 260 units are demanded at ₹50, and at a price of ₹45 the quantity demanded is 300 units on the new schedule. What is the change in demand at ₹50 and the extension in quantity demanded on the new schedule when price moves from ₹50 to ₹45?

Demand increases by 60 units, since quantity at ₹50 rises from 200 to 260 because of higher income. Quantity demanded then extends by 40 units along the new schedule, from 260 to 300, when price falls to ₹45. The two effects must be kept separate.

  1. AIncrease in demand of 100 units; extension of 40 units
  2. BIncrease in demand of 60 units; extension of 40 unitsCorrect
  3. CIncrease in demand of 60 units; extension of 100 units
  4. DIncrease in demand of 40 units; extension of 60 units

Explanation

Change in demand is the shift at an unchanged price: 260 - 200 = 60 units increase at ₹50. Extension is the movement along the new schedule: 300 - 260 = 40 units when price falls from ₹50 to ₹45. Option with 100 wrongly compares the new schedule at ₹45 with the old schedule at ₹50, mixing shift and movement.

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