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

The demand for a normal good such as air-conditioners in Hyderabad rises at every price because the average household income has increased. On a diagram this is shown by:

The increase is shown by a rightward shift of the demand curve. Since income, not own price, has changed and a normal good is involved, more is demanded at every price. Movements along the curve occur only with own-price changes.

  1. AA downward movement along the same demand curve
  2. BAn upward movement along the same demand curve
  3. CA rightward shift of the demand curveCorrect
  4. DA leftward shift of the demand curve

Explanation

Higher income for a normal good means more is demanded at each price, so the whole demand curve shifts to the right. Movements along a curve occur only when the good's own price changes, so options one and two are wrong. A leftward shift would indicate a decrease in demand.

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