Skip to content

CA Foundation · Business Economics · Theory of Demand and Supply

In Indian cities, the price of petrol rises and, as a result, the number of litres bought per month by a household falls, while its income, tastes and the price of other goods remain unchanged. How is this change represented on the household's demand curve for petrol?

The fall in petrol purchases caused only by a higher price of petrol is an upward movement along the same demand curve, known as contraction of demand. The curve itself does not shift because income, tastes and other prices are unchanged.

  1. AA leftward shift of the entire demand curve
  2. BAn upward movement along the same demand curve, called a contraction of demandCorrect
  3. CA downward movement along the same demand curve, called an extension of demand
  4. DA rightward shift of the entire demand curve

Explanation

A change in the good's own price, with all other determinants constant, moves the consumer along the same demand curve. A price rise reduces quantity demanded, which is an upward movement called a contraction of demand. A shift would require a change in a determinant other than own price, so the shift options are wrong.

Did you get it right without looking?

One question tells you little. A timed set on Theory of Demand and Supply shows your real accuracy, how long you take and where you lose marks.

Practise Theory of Demand and SupplyFree diagnostic mock

More Theory of Demand and Supply questions