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

Initially the demand for a product is Qd = 100 - 2P. Following a successful advertising campaign, demand becomes Qd = 120 - 2P. At a price of ₹20, the firm's sales change from Q1 to Q2. Which description is correct?

Sales rise from 60 to 80 units at ₹20, so demand has increased through a parallel rightward shift of 20 units at every price. The slope stays at -2 and only the intercept rises, and the price is constant, so it is not a movement along the old curve.

  1. AQ1 = 60 and Q2 = 80; demand has increased through a parallel rightward shift of 20 units at each priceCorrect
  2. BQ1 = 60 and Q2 = 80; quantity demanded has extended along the original curve
  3. CQ1 = 100 and Q2 = 120; demand has increased through a steeper curve
  4. DQ1 = 60 and Q2 = 70; demand has increased through a parallel shift

Explanation

At P = 20, Q1 = 100 - 40 = 60 and Q2 = 120 - 40 = 80. The intercept rises by 20 while the slope (-2) stays the same, so the shift is parallel, with 20 more units at every price. The price is held constant, so this is a change in demand and not a movement along a curve.

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