Theory of Demand and SupplyPYQ - Nov 2020Question 26 of 20
All Questions

The Law of Demand, assuming other things to remain constant, establishes the relationship between:

Options

AIncome of the consumer and the quantity of a good demanded by him
BPrice of a good and the quantity demanded
CPrice of a good and the demand for its substitute
DQuantity demanded of a good and the relative prices of its complementary goods
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Correct Answer

✅ Option b — Price of a good and the quantity demanded

All Options:

  • AIncome of the consumer and the quantity of a good demanded by him
  • BPrice of a good and the quantity demanded
  • CPrice of a good and the demand for its substitute
  • DQuantity demanded of a good and the relative prices of its complementary goods

Detailed Solution & Explanation

To understand the Law of Demand, we need to break it down into its core components. • The Law of Demand is a fundamental concept in economics that describes the relationship between the price of a good and the quantity demanded by consumers. • It states that, assuming other things remain constant, as the price of a good increases, the quantity demanded decreases, and vice versa. • This inverse relationship is based on the idea that as the price of a good rises, consumers will tend to buy less of it, and as the price falls, they will tend to buy more. The correct answer is right because it accurately reflects the Law of Demand, which focuses on the relationship between the price of a good and the quantity demanded. • Options like the relationship between income of the consumer and the quantity of a good demanded, or the quantity demanded of a good and the relative prices of its complementary goods, are related to other economic concepts, such as the Engel Curve or the concept of complementary goods, but they do not directly describe the Law of Demand. • For example, the relationship between income and quantity demanded is more closely related to the concept of normal goods and inferior goods, rather than the Law of Demand itself.

About This Chapter: Theory of Demand and Supply

Paper

Paper 4: Business Economics

Weightage

10%

Key Topics

Law of Demand/Supply, Elasticity, Consumer Behavior

One of the most important chapters in the entire CA Foundation Economics paper. It covers the Law of Demand, Law of Supply, Elasticity of Demand (Price, Income, and Cross), Consumer Behavior (Cardinal and Ordinal approaches), and the concept of Consumer Surplus. Understanding demand and supply curves and their shifts is essential for grasping market dynamics.

View Official ICAI Syllabus

Exam Strategy Tip

Master the difference between 'Change in Demand' (shift) and 'Change in Quantity Demanded' (movement). This distinction alone can secure 3-5 marks. Also practice Elasticity numerical calculations.

Related Comparison Tables

Change in Demand vs Change in Quantity Demanded: 5 Marks Guaranteed

More Questions from Theory of Demand and Supply

Identify the factor which generally keeps the price-elasticity of demand for a good low:

Supply is a concept:

Demand for a commodity refers to:

Contraction of demand is the result of:

All but one of the following are assumed to remain the same while drawing the demand curve for a commodity. Which one is it?

Which of the following pairs of goods is an example of substitutes?

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