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

The demand function for a product is Q = 120 − 4P, where Q is quantity demanded in units and P is price in rupees. If price falls from ₹10 to ₹8, what is the increase in quantity demanded, and does this conform to the law of demand?

Quantity demanded rises by 8 units, from 80 at ₹10 to 88 at ₹8. Since price fell while quantity rose, they move in opposite directions, and the negative slope of −4 confirms the demand function conforms to the law of demand.

  1. A8 units; yes, price and quantity move in opposite directionsCorrect
  2. B8 units; no, price and quantity move in the same direction
  3. C32 units; yes, price and quantity move in opposite directions
  4. D2 units; yes, price and quantity move in opposite directions

Explanation

At P = 10, Q = 120 − 40 = 80. At P = 8, Q = 120 − 32 = 88. The increase is 8 units. Price fell and quantity rose, so they move in opposite directions, consistent with the law of demand (slope −4 is negative). Option D confuses the price change of ₹2 with the quantity change.

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