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

In the market for tea in Kolkata, the price of tea falls from ₹400 per kg to ₹360 per kg, and consumers buy more tea, all other factors remaining unchanged. In economic terms, this is best described as:

The fall in tea's own price raises quantity demanded along the same demand curve, which is called extension of demand. It is not an increase in demand, because that term means the whole curve shifts right owing to non-price factors such as income or tastes.

  1. AAn extension of demand, i.e. a movement down along the same demand curveCorrect
  2. BAn increase in demand, i.e. a rightward shift of the demand curve
  3. CA contraction of demand, i.e. a movement up along the same demand curve
  4. DA decrease in demand, i.e. a leftward shift of the demand curve

Explanation

A change in the good's own price, with other factors constant, causes a movement along the same demand curve. A price fall leads to a larger quantity demanded, which is called extension of demand. A shift of the curve would need a change in a non-price determinant such as income or tastes.

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