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CMA Foundation · Fundamentals of Business Economics and Management · The Fundamentals of Economics

Assuming that income, tastes and the prices of related goods stay unchanged, the price of tea in a town falls from ₹40 to ₹30 per 100 g pack and the quantity bought by households rises. Which statement best describes this change?

This is an extension of demand. When only the own price of a good changes and other determinants stay constant, the consumer moves along the same demand curve to a larger quantity. A shift of the whole curve needs a change in a non-price factor such as income.

  1. AAn extension of demand along the same demand curveCorrect
  2. BAn increase in demand, shifting the demand curve to the right
  3. CA decrease in demand, shifting the demand curve to the left
  4. DA fall in supply shifting the supply curve to the left

Explanation

A change in the good's own price with all other factors constant moves us along the same demand curve. A fall in price leading to a larger quantity demanded is an extension of demand. An increase in demand would require a non-price factor such as higher income, which is excluded here.

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