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

Which one of the following events would cause a leftward shift of the demand curve for branded cooking oil, i.e. a decrease in demand, rather than a mere contraction of quantity demanded?

A fall in consumer incomes for a normal good shifts the demand curve left, because consumers buy less at every price. Changes in the good's own price only move along the curve, and lower input costs affect supply rather than demand.

  1. AA rise in the price of the branded oil itself
  2. BA fall in consumer incomes when the oil is a normal goodCorrect
  3. CA fall in the price of the branded oil
  4. DA fall in the cost of oilseeds used to make the oil

Explanation

A fall in income reduces demand for a normal good at every price, shifting the curve left. A rise in the oil's own price only causes a contraction, i.e. an upward movement along the curve. A fall in its own price causes an extension. A fall in oilseed costs is a supply-side factor and shifts the supply curve.

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