Which one of the following does not influence quantity demanded for a good?
- (a)Good's own price
- (b)Price of a complementary good
- (c)Price of a substitute good
- (d)Prices of inputs into production of the good
Correct — D, Prices of inputs into production of the good. The demand side and the supply side of a market respond to different things. Quantity demanded is determined by the good's own price, the prices of related goods — substitutes and complements — the consumer's income, and tastes and preferences. Input prices belong to the seller's calculation: when wages, raw material or fuel become dearer, the cost of producing each unit rises and the supply curve shifts, but the buyer's willingness to purchase at any given price is untouched. The market price may of course move as a result, and quantity demanded will then change along the demand curve; that is a movement caused by price, not an independent influence of input costs on demand.
- (a)Good's own price — The good's own price is the primary determinant of quantity demanded, and the law of demand is the statement of that relationship. A change in it produces a movement along the demand curve.
- (b)Price of a complementary good — The price of a complement matters directly. Complements are consumed together, so a rise in the price of one reduces demand for the other — dearer petrol depresses demand for cars, dearer printers for cartridges.
- (c)Price of a substitute good — The price of a substitute matters too, in the opposite direction. When a substitute becomes dearer, buyers switch towards this good and demand for it rises — the standard tea and coffee illustration.
The demand for a good is the quantity a consumer is willing to buy at each price, other things remaining equal. The determinants held in that other-things clause are the prices of related goods, the consumer's income and the consumer's tastes and preferences. A change in the good's own price moves the consumer along a fixed demand curve; a change in any of the other determinants shifts the whole curve. Supply is a separate function, determined by the good's price, the prices of inputs, technology and the number of sellers.
Questions of this shape are testing whether a candidate can keep the demand function and the supply function apart, and the giveaway is the phrase inputs into production. Production is what a seller does. A useful discipline is to ask, for each option, whether a buyer standing in a shop would know or care about it. The price on the label, yes; the price of the substitute on the next shelf, yes; the price of the thing you need alongside it, yes; the wage the factory paid last month, no. The same distinction underlies the classic pair of exam items on movement along a curve against a shift of the curve — only the good's own price does the first, and everything else in the demand function does the second.
- Quantity demanded depends on the good's own price, the prices of substitutes and complements, consumer income and tastes.
- Input prices are a determinant of supply, not of demand; a rise in them shifts the supply curve.
- A change in the good's own price causes a movement along the demand curve; a change in any other determinant shifts the curve.
- Substitutes and this good move together in demand terms — a costlier substitute raises demand for this good.
- Complements move the other way — a costlier complement reduces demand for this good.
Three of the four sit in the demand function; the fourth belongs to the seller's side of the market.
- Reasoning that input prices affect demand because they affect the final price — that is an effect through price, which is a movement along the demand curve.
- Treating a change in the good's own price as a shift of the demand curve.
- Reversing the direction for substitutes and complements.
As a which-does-not-influence item, as a movement-against-shift question, or by asking what happens to equilibrium when one determinant changes.
CDS_GK_2021_II_Q472021Which one of the following may lead to movement along the demand curve of a commodity?
- (a) Change in its price
- (b) Change in price of the other commodities
- (c) Change in income of the consumer
- (d) Change in tastes and preferences of consumers
Answer(a) Change in its price
The same demand function tested from the other end. It lists the determinants that shift the curve and asks for the one that moves the consumer along it, which is the distinction the 2022 item relies on when it slips an input price into the list.
CDS_GK_2020_II_Q342020Normally, there will not be a shift in the demand curve when
- (a) price of a commodity falls
- (b) consumers want to buy more at any given price
- (c) average income rises
- (d) population grows
Answer(a) price of a commodity falls
The same point once more, phrased negatively. A change in the commodity's own price is the one event that leaves the demand curve exactly where it was.
- practice — not a real PYQ
A change in which one of the following causes a movement along the demand curve rather than a shift of it?
- (a)The consumer's income
- (b)The good's own price
- (c)The price of a substitute
- (d)Consumer tastes
Answer(b) The good's own price — every other determinant shifts the whole curve.
- practice — not a real PYQ
A rise in the price of a complementary good will, other things being equal,
- (a)increase the demand for the good
- (b)decrease the demand for the good
- (c)leave the demand for the good unchanged
- (d)shift the supply curve of the good
Answer(b) Decrease the demand for the good — complements are consumed together, so a costlier complement reduces demand for both.