Consider the following statements: Other things remaining unchanged, market demand for a good might increase if 1. Price of its substitute increase 2. Price of its complement increase 3. The good is an inferior good and income of the consumers increases 4. Its price falls Which of the above statements are correct?

Question

Consider the following statements: ​ Other things remaining unchanged, market demand for a good might increase if ​ 1. Price of its substitute increase ​ 2. Price of its complement increase ​ 3. The good is an inferior good and income of the consumers increases ​ 4. Its price falls ​ Which of the above statements are correct? ​

CollectorBabu · Accepted Answer

Correct Answer: 1 and 4 only ​. Statement 1 is correct - With increase in price  of substitute goods, people will favour it more(tea-coffee).  Statement 2 is incorrect - Since complementary goods are used together with its price increase, demand will fall Ex- (Tea-Sugar).  Statement 3 is incorrect - Inferior good demand falls with increase in income Statement 4 is correct-  It is the basic notion of the Theory of Demand.

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