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CSEET · Economic and Business Environment · Basics of Demand and Supply and Forms of Market Competition

The price of tea in India rises and, as a result, households buy fewer packets of tea per month. In demand analysis, this is best described as:

It is a contraction of demand. When the good's own price rises and quantity demanded falls, the consumer moves upward along the same demand curve. No determinant other than price has changed, so the demand curve itself does not shift.

  1. AA contraction of demandCorrect
  2. BA decrease in demand
  3. CAn increase in demand
  4. DAn extension of demand

Explanation

A rise in the good's own price reduces quantity demanded, which is a movement upward along the same demand curve and is called contraction of demand. A decrease in demand is a leftward shift caused by non-price factors such as a fall in income. Extension would follow a price fall.

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