UPSC CSE Prelims
Market, Demand and Supply Previous Year Questions (PYQs)

Detailed Explanation:

Answer: Option 1 — 1 and 4 only

Market demand for a good increases when consumers are willing to buy more at the same price. This happens when substitutes become expensive (Statement 1) or when the price of the good itself falls (Statement 4), per the Law of Demand.

✅ Statement 1 – Correct: When the price of a substitute increases, the good becomes relatively cheaper, causing consumers to shift demand towards it, thereby increasing market demand.

❌ Statement 2 – Incorrect: Complementary goods are consumed together (e.g., cars and fuel). An increase in the price of a complement raises the overall cost of consumption, thereby decreasing (not increasing) demand for the good.

❌ Statement 3 – Incorrect: Inferior goods have an inverse income-demand relationship. When consumer income increases, they switch to superior/normal goods, causing demand for inferior goods to decrease.

✅ Statement 4 – Correct: According to the Law of Demand, ceteris paribus, a fall in price leads to an increase in quantity demanded, which increases market demand.

📝 Short Notes: Demand Determinants and Related Goods

• Law of Demand: Price and quantity demanded are inversely related, other factors remaining constant.
• Substitute Goods: Goods that can replace each other (tea-coffee). Price of substitute ↑ → Demand for the good ↑
• Complementary Goods: Goods consumed together (car-petrol, pen-ink). Price of complement ↑ → Demand for the good ↓
• Normal Goods: Income ↑ → Demand ↑ (positive relationship)
• Inferior Goods: Income ↑ → Demand ↓ (inverse relationship; examples: coarse grains, low-quality products)
• Demand vs Quantity Demanded: Change in price affects 'quantity demanded' (movement along curve); change in other factors (income, substitute prices) affects 'demand' (shift of curve)