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CSEET · Economic and Business Environment · Basics of Demand and Supply and Forms of Market Competition

Following a sharp fall in the price of petrol, the demand for electric two-wheelers in a city decreases at every price. Which statement correctly describes this change?

The demand curve for electric two-wheelers shifts leftward. A fall in petrol prices makes a substitute cheaper, reducing demand at every price. Since the change comes from a related good's price rather than the good's own price, it is a shift, not a movement along the curve.

  1. AA contraction of demand along the same demand curve for electric two-wheelers
  2. BA leftward shift of the demand curve because petrol, a substitute for electric two-wheeler use, has become cheaperCorrect
  3. CAn extension of demand along the same demand curve
  4. DA rightward shift of the demand curve because the good has become inferior

Explanation

Cheaper petrol makes petrol-run vehicles more attractive, so demand for electric two-wheelers falls at every price. Because the cause is a change in the price of a related good, not the good's own price, the whole demand curve shifts left. Contraction or extension would apply only to own-price changes.

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