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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 sharply, and as a result the quantity of tea that households buy falls, while nothing else changes. In demand analysis, this is best described as:

It is a contraction of demand along the same demand curve. When only the good's own price changes and other determinants stay constant, quantity demanded moves along the curve. Curve shifts arise from changes in income, tastes, related-goods prices or expectations, not from the good's own price.

  1. AA contraction of demand along the same demand curveCorrect
  2. BA leftward shift of the demand curve
  3. CAn increase in demand
  4. DA rightward shift of the demand curve

Explanation

A change in the product's own price, with other factors constant, causes a movement along the existing demand curve. A fall in quantity due to a price rise is a contraction. A shift of the curve happens only when a determinant other than own price changes.

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