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IAI Actuarial Core Principles · Business Economics · How competitive markets operate

Which of the following would cause a movement along, rather than a shift of, the demand curve for two-wheeler loans offered by an NBFC?

A fall in the interest rate charged on the NBFC's own loans causes a movement along the demand curve, because it is a change in the product's own price. The other options change non-price determinants such as complements, income, tastes or substitutes, and so shift the curve.

  1. AA fall in the interest rate charged on the loansCorrect
  2. BA rise in the price of petrol, a complementary good
  3. CA rise in consumer incomes
  4. DAn advertising campaign that improves the loans' image
  5. A cut in the price of competing loans from banks

Explanation

The interest rate is the price of the loan itself, so its change moves quantity demanded along the curve. Petrol prices, incomes, advertising and competitors' prices are non-price determinants and shift the curve.

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