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

Petrol and car sales are complements. If the price of petrol rises sharply in India, which outcome is most likely, other things unchanged?

The demand curve for cars shifts left, because petrol is a complement and its higher price makes owning and running a car costlier. Demand falls at every car price, which is a shift of the curve, not a movement along it.

  1. ADemand curve for cars shifts to the leftCorrect
  2. BDemand curve for cars shifts to the right
  3. CQuantity demanded of cars rises along the same curve
  4. DSupply curve of cars shifts to the right

Explanation

A rise in the price of a complement raises the cost of using the main good, so demand for cars falls at every price. This is a leftward shift of the demand curve. A movement along the curve would need a change in the car's own price.

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