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

A linear demand function for a product is Q = 120 − 4P, where Q is units and P is price in ₹. Due to a successful advertising campaign, the demand function becomes Q = 150 − 4P. At a price of ₹10, what is the change in quantity demanded and its nature?

Quantity demanded at ₹10 rises from 80 to 110 units, and this is an increase in demand, a rightward shift of the curve. Price did not change; advertising altered tastes, so the demand function itself moved, not a point along it.

  1. ARise from 80 to 110 units, an increase in demand (shift)Correct
  2. BRise from 80 to 110 units, an extension of demand along the curve
  3. CRise from 80 to 150 units, an increase in demand (shift)
  4. DFall from 110 to 80 units, a decrease in demand

Explanation

At P = 10, the old Q = 120 − 40 = 80 and the new Q = 150 − 40 = 110, a rise of 30 units. Price is unchanged, and the cause is a change in tastes through advertising, so the whole curve shifts right. Calling it an extension is wrong because extension needs a price fall.

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