When the price of a substitute of commodity X falls, the demand for X:
Options
ARises
BFalls
CRemains unchanged
DAny of the above
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Theory of Demand and SupplyPYQ - June 2023Question 33 of 20
All Questions Correct Answer
✅ Option b — Falls
All Options:
- ARises
- BFalls
- CRemains unchanged
- DAny of the above
Detailed Solution & Explanation
To understand the effect of a price decrease in a substitute commodity on the demand for another commodity, we need to consider the law of demand and the concept of substitutes.
• When the price of a substitute of commodity X falls, it becomes more attractive to consumers who are looking for alternatives to X.
• As a result, some consumers will switch from X to the substitute, leading to a decrease in the demand for X.
• This is because substitutes are goods that can satisfy the same needs or wants, and a decrease in the price of one substitute makes it more appealing compared to the other.
The correct answer is based on the principle that a decrease in the price of a substitute will lead to a decrease in the demand for the original commodity.
• Option A is incorrect because the demand for X does not rise when the price of its substitute falls.
• Option C is also incorrect because the demand for X does not remain unchanged when the price of its substitute changes, as there is a substitution effect that occurs.
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 SyllabusExam 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.
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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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