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CA Foundation · Business Economics · Theory of Demand and Supply

The demand for a smartphone model is given by Qd = 800 − 2P, where P is price in rupees thousand and Qd is in units. At P = 10, quantity demanded is 780. Following a rise in consumers' incomes, the new demand becomes Qd = 900 − 2P. What is the quantity demanded at the same price of 10, and how is the change described?

The quantity demanded at ₹10 thousand becomes 880 units, since 900 − 20 = 880. Because it rose from 780 at an unchanged price due to higher income, this is an increase in demand, a rightward shift, rather than an extension along the old curve.

  1. A780 units; no change, as price is the same
  2. B820 units; movement along the demand curve
  3. C880 units; an increase in demand (rightward shift)Correct
  4. D880 units; an extension of demand

Explanation

At P = 10 the new demand is 900 − 2(10) = 880 units. Quantity demanded at the same price rose from 780 to 880 because income changed, not price. This is an increase in demand, a rightward shift, not an extension, which is caused by a price fall. Check: the intercept rose by 100, so the quantity at every price rose by 100.

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