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The Price Puzzle: What Drives the Market

NCERT Class 9 · Social Science Based on NCERT Class 9 Social Science textbook · Free CBSE study kit

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Chapter Notes

Overview
This chapter explains how prices of goods and services are determined by the interaction of demand and supply in a market. It introduces the laws of demand and supply, the concept of market equilibrium, and the factors that shift demand and supply curves. The big idea is that prices are not random; they are signals that coordinate the decisions of buyers and sellers, and the government sometimes intervenes to ensure fairness and equity when markets fail.
Key Concepts (29)
Demand
The quantity of a product that people are willing and able to buy at a particular price, depending on their needs, preferences, season, trend, and income.
e.g. Srivalli buys 1 kg of mangoes at ₹150 per kg but buys 3 kg when the price falls to ₹50 per kg.
Law of Demand
The inverse relationship between the price of a product or service and its quantity demanded — when price rises, quantity demanded falls, and when price falls, quantity demanded rises.
e.g. When mango prices rise from ₹50 to ₹150 per kg, Srivalli's demand falls from 3 kg to 1 kg.
Individual Demand
The quantity of a good or service that an individual consumer wants to buy at different prices, keeping other factors constant.
e.g. Srivalli's demand schedule shows she buys 1 kg at ₹150, 2 kg at ₹100, and 3 kg at ₹50.
Market Demand
The total quantity of a good or service demanded by all potential buyers at different prices, i.e., the sum of all individual demands.
e.g. At ₹100 per kg, Srivalli demands 2 kg, Alex demands 4 kg, and Israt demands 6 kg, so market demand is 12 kg.
Demand Schedule
A table showing the quantity of a good demanded at different prices.
e.g. The table showing Srivalli's purchases at ₹150, ₹100, and ₹50 per kg is her individual demand schedule.
Demand Curve
A graphical representation of the demand schedule, showing the inverse relationship between price and quantity demanded; it slopes downward from left to right.
e.g. The line DD' in Fig. 9.2(b) connecting points A, B, and C is Srivalli's individual demand curve.
Substitute Goods
Goods that can replace each other; if the price of one rises, demand for the other increases.
e.g. Tea and coffee; if coffee becomes more expensive, people switch to tea, increasing tea's demand.
Complementary Goods
Goods that are generally used together; if demand for one rises, demand for the other also rises, and vice versa.
e.g. Smartphones and earphones; if demand for printers increases, demand for printer cartridges also rises.
Supply
The quantity of a product that sellers are willing and able to offer at a particular price.
e.g. Seller A supplies 1 kg of mangoes at ₹50 per kg, 2 kg at ₹100, and 3 kg at ₹150.
Law of Supply
The direct relationship between price and quantity supplied — as price rises, quantity supplied increases, and as price falls, quantity supplied decreases.
e.g. At ₹50 per kg, seller A supplies 1 kg; at ₹150 per kg, he supplies 3 kg.
Individual Supply
The quantity a particular seller offers at different prices.
e.g. Seller A's supply schedule shows 1 kg at ₹50, 2 kg at ₹100, and 3 kg at ₹150.
Market Supply
The sum of all individual supplies of a good or service at different prices.
e.g. At ₹100 per kg, seller A supplies 2 kg, seller B supplies 4 kg, and seller C supplies 6 kg, so market supply is 12 kg.
Supply Curve
A graphical representation of the supply schedule, showing the direct relationship between price and quantity supplied; it slopes upward from left to right.
e.g. The line SS' in Fig. 9.4(b) is seller A's individual supply curve.
Market Equilibrium
The point where the quantity demanded equals the quantity supplied, meaning there is no excess supply (surplus) or excess demand (shortage) in the market, and prices tend to remain stable unless external factors change.
e.g. At ₹100 per kg, quantity demanded (12 kg) equals quantity supplied (12 kg) — this is the equilibrium point E in Fig. 9.7.
Equilibrium Price
The price at which the quantity demanded equals the quantity supplied.
e.g. In the mango market, the equilibrium price is ₹100 per kg.
Equilibrium Quantity
The quantity bought and sold at the equilibrium price.
e.g. In the mango market, the equilibrium quantity is 12 kg.
Excess Demand
A situation where quantity demanded exceeds quantity supplied at a given price, leading to a shortage.
e.g. At ₹40 per kg, quantity demanded (38 kg) is much greater than quantity supplied (6 kg).
Excess Supply
A situation where quantity supplied exceeds quantity demanded at a given price, leading to a surplus.
e.g. At ₹150 per kg, quantity supplied (43 kg) is much greater than quantity demanded (8 kg).
Price Ceiling
An imposed price control that sets the maximum amount a seller can charge for a product or service.
e.g. The government set a maximum retail price of ₹100 for 200 ml sanitiser bottles during COVID-19.
Price Floor
An imposed limit on how low a price can be charged for a product, good, or service; to be effective, it must be set above the market equilibrium price.
e.g. The government sets a minimum wage to ensure workers earn enough for their hard work.
Monopoly
A market structure with a single seller or producer controlling the entire supply of a unique product or service, facing no close substitutes, allowing them significant power to set prices and output.
e.g. If a single firm controls the entire supply of a life-saving medicine, it can charge very high prices.
Public Goods
Goods and services provided by the government for the benefit of all citizens, usually not provided by private companies because they do not generate direct profit.
e.g. Roads, bridges, public parks, streetlighting, national defence, sanitation, and drainage systems.
Hoarding
Accumulation of goods, commodities, or money by individuals or firms beyond what is immediately necessary, typically driven by fear of future shortages, anticipated price increases, or speculative motives.
e.g. During COVID-19, some shopkeepers hoarded sanitisers to sell at higher prices later.
Black Marketing
The illegal trade of goods and services that are banned or regulated.
e.g. Selling sanitisers at prices above the government-capped maximum retail price during the pandemic.
Purchasing Power
A measure of how much one unit of a particular currency can buy at a particular time.
e.g. If ₹100 can buy 2 kg of mangoes today but only 1 kg next month, purchasing power has fallen.
Revenue
Total amount of money a business earns from the sale of goods or services, or other operating activities, before any expenses are deducted.
e.g. A hotel earns revenue from room bookings; if it sells 50 rooms at ₹2,000 each, revenue is ₹1,00,000.
Ease of Doing Business
How simple it is to start, run, and close a business in a country, measured by regulations, bureaucratic efficiency, and legal frameworks.
e.g. A small restaurant needing multiple permissions (food safety, fire safety, pollution control) faces a low ease of doing business.
Related Goods
Products whose demand is interconnected, meaning a change in the price or availability of one directly affects the demand for the other.
e.g. Tea and coffee (substitutes); smartphones and earphones (complements).
Diminishing Marginal Utility
The principle that the additional utility or usefulness derived from a product declines as more of it is consumed.
e.g. The first mango tastes delicious, the second is good, but by the third or fourth, you are barely interested.
How It Works
Price Determination through Demand and Supply Interaction
  1. Buyers and sellers negotiate in the market — buyers want low prices, sellers want high prices.
  2. At a given price, if quantity demanded exceeds quantity supplied, there is excess demand (shortage), pushing prices upward.
  3. At a given price, if quantity supplied exceeds quantity demanded, there is excess supply (surplus), pushing prices downward.
  4. The price adjusts until quantity demanded equals quantity supplied — this is the equilibrium price.
  5. At equilibrium, the market is 'cleared' — no shortage, no surplus, and no pressure for prices to change unless external factors shift demand or supply.
💡 Students often think equilibrium is a fixed point — it is not; it constantly shifts as demand and supply conditions change in the real world.
How a Change in Price Affects Quantity Demanded (Movement along the Demand Curve)
  1. When the price of a good falls, the quantity demanded increases — consumers buy more.
  2. When the price of a good rises, the quantity demanded decreases — consumers buy less.
  3. This movement is along the same demand curve; the curve itself does not shift.
  4. The inverse relationship is the Law of Demand.
💡 A change in price causes a movement along the demand curve, not a shift of the curve. A shift happens only when non-price factors (income, tastes, etc.) change.
How Non-Price Factors Shift the Demand Curve
  1. A change in income: higher income increases demand for most goods at the same price, shifting the demand curve rightward.
  2. A change in the price of substitute goods: if coffee becomes expensive, demand for tea increases at the same price — demand curve shifts right.
  3. A change in the price of complementary goods: if movie tickets become expensive, demand for popcorn falls — demand curve shifts left.
  4. Changes in taste and preference: if a product becomes trendy, demand increases at the same price.
  5. Seasonality: demand for sweaters rises in winter, shifting the demand curve right.
  6. Future price expectations: if prices are expected to rise, current demand increases; if expected to fall, current demand decreases.
  7. Population size and composition: more children increase demand for sports shoes; more elderly increase demand for orthopaedic shoes.
💡 Students confuse 'change in quantity demanded' (movement along the curve due to price change) with 'change in demand' (shift of the entire curve due to non-price factors).
How a Change in Price Affects Quantity Supplied (Movement along the Supply Curve)
  1. When the price of a good rises, the quantity supplied increases — producers are willing to offer more.
  2. When the price of a good falls, the quantity supplied decreases — producers offer less.
  3. This movement is along the same supply curve; the curve itself does not shift.
  4. The direct relationship is the Law of Supply.
💡 A change in price causes a movement along the supply curve, not a shift. A shift occurs only when non-price factors (technology, input costs, etc.) change.
How Non-Price Factors Shift the Supply Curve
  1. Change in the price of related goods: if chickpea prices are high and wheat prices are low, a farmer will grow more chickpeas — supply of wheat falls (curve shifts left).
  2. Change in the number of sellers: more sellers increase market supply (curve shifts right); fewer sellers decrease market supply (curve shifts left).
  3. Change in technology: improved technology (e.g., drip irrigation) reduces production costs and increases supply (curve shifts right).
  4. Future expectations: if producers expect higher demand in the future, they may increase production now (curve shifts right); if they expect lower demand, they reduce production (curve shifts left).
  5. Other factors: changes in input costs, weather, natural disasters, depletion of resources.
💡 Students often forget that supply can shift due to expectations and weather, not just price and technology.
How Market Equilibrium is Reached
  1. At a price below equilibrium, quantity demanded exceeds quantity supplied (excess demand/shortage).
  2. Buyers compete for the limited goods, pushing the price upward.
  3. As price rises, quantity demanded falls and quantity supplied rises, moving toward equilibrium.
  4. At a price above equilibrium, quantity supplied exceeds quantity demanded (excess supply/surplus).
  5. Sellers reduce prices to clear their stock, pushing the price downward.
  6. As price falls, quantity demanded rises and quantity supplied falls, moving toward equilibrium.
  7. At equilibrium, quantity demanded equals quantity supplied, and the market clears.
💡 The market does not instantly jump to equilibrium — it is a process of adjustment. In the real world, markets are always moving toward a new equilibrium.
Government Intervention in Markets
  1. The government identifies market failures: unaffordable essentials, monopolies, under-provision of public goods.
  2. It sets a price ceiling (maximum price) for essential goods like medicines to prevent overcharging.
  3. It sets a price floor (minimum price) like minimum wage to protect workers.
  4. It regulates monopolies to prevent exploitation (e.g., through regulators like TRAI, SEBI, RBI).
  5. It provides public goods (roads, parks, defence) that private companies do not supply due to lack of profit.
  6. It intervenes during emergencies (e.g., capping sanitiser prices during COVID-19 under the Essential Commodities Act, 1955).
💡 Government intervention can have adverse effects: price distortions, reduced producer incentives, compliance burdens, and discouragement of innovation.
Exam Traps — Don't Make These Mistakes
⚠ Confusing 'demand' with 'desire'
✗ Demand is the desire to buy a product.
→ Demand is not just desire; it requires both willingness AND ability (purchasing power) to buy. A poor person may desire a car but cannot afford it — that is not demand.
✓ Demand is the quantity of a product that people are willing AND able to buy at a particular price.
⚠ Mixing up 'change in quantity demanded' with 'change in demand'
✗ When income increases, the quantity demanded for a good increases.
→ A change in income shifts the entire demand curve (change in demand), not a movement along it. 'Quantity demanded' changes only when the price of the good itself changes.
✓ When income increases, the demand for most goods increases (the demand curve shifts rightward). When the price of the good falls, the quantity demanded increases (movement along the curve).
⚠ Thinking the supply curve slopes downward like the demand curve
✗ The supply curve slopes downward from left to right.
→ The law of supply states a direct relationship between price and quantity supplied — higher price leads to higher quantity supplied, so the supply curve slopes upward.
✓ The supply curve slopes upward from left to right, showing that as price rises, quantity supplied increases.
⚠ Believing market equilibrium is permanent
✗ Once a market reaches equilibrium, the price stays the same forever.
→ In the real world, markets are dynamic — factors like technology, weather, income, and trends constantly change, shifting demand and supply curves and creating a new equilibrium.
✓ Market equilibrium is a theoretical point; in reality, markets are always adjusting toward a new equilibrium as conditions change.
⚠ Confusing substitute and complementary goods
✗ If the price of petrol rises, demand for cars will increase because cars and petrol are substitutes.
→ Cars and petrol are complementary goods (used together), not substitutes. If petrol becomes expensive, people use cars less, so demand for cars falls.
✓ If the price of petrol rises, the demand for cars (a complementary good) will decrease. Substitute goods are those that can replace each other, like tea and coffee.
⚠ Assuming government intervention always works perfectly
✗ Government price controls always benefit consumers.
→ Excessive government intervention can cause price distortions, reduce producer incentives (leading to shortages), create compliance burdens, and discourage innovation.
✓ Government intervention is necessary when markets fail, but it must be implemented carefully as it can have adverse effects like shortages, reduced supply, and lower innovation.
Compare & Contrast
Relationship with price
Demand
Supply
Demand has an inverse relationship with price (Law of Demand: price rises, quantity demanded falls). Supply has a direct relationship with price (Law of Supply: price rises, quantity supplied rises).
How they affect each other's demand
Substitute Goods
Complementary Goods
Substitute goods can replace each other (e.g., tea and coffee); if the price of one rises, demand for the other increases. Complementary goods are used together (e.g., smartphones and earphones); if demand for one rises, demand for the other also rises.
Purpose and effect
Price Ceiling
Price Floor
A price ceiling sets a maximum price (e.g., on essential medicines) to protect consumers from overcharging; it is set below equilibrium and can cause shortages. A price floor sets a minimum price (e.g., minimum wage) to protect producers/workers; it is set above equilibrium and can cause surpluses.
Scope
Individual Demand
Market Demand
Individual demand is the quantity a single consumer wants to buy at different prices. Market demand is the sum of all individual demands of all consumers in the market at different prices.
Exam Focus
Marks pattern: 2 MCQs (1 mark each), 1 Very Short Answer (1 mark), 1 Short Answer (3 marks), 1 Long Answer (5 marks) — total approximately 10 marks
Most asked: Law of Demand and Law of Supply with examples · Market equilibrium — determination of equilibrium price and quantity · Substitute and complementary goods — effect of price change on demand · Government intervention — price ceiling, price floor, and their effects · Difference between individual and market demand/supply · Shifts in demand and supply curves due to non-price factors
Don't skip: Explain the concept of market equilibrium with the help of a demand and supply schedule and graph.; Distinguish between substitute goods and complementary goods with examples. How does a change in the price of one affect the demand for the other?; Discuss the role of government intervention in markets. Explain price ceiling and price floor with examples.; Explain the Law of Demand and Law of Supply. Why does the demand curve slope downward and the supply curve slope upward?
Safe to skip: Diminishing marginal utility — it is mentioned as a 'Think About It' box and is low-weightage in board exams for this chapter.
One-Line Revision (read aloud before the exam)
  1. Demand is the quantity of a product that people are willing and able to buy at a particular price.
  2. The Law of Demand states an inverse relationship between price and quantity demanded.
  3. The demand curve slopes downward from left to right.
  4. Market demand is the sum of all individual demands in the market.
  5. Substitute goods can replace each other; complementary goods are used together.
  6. Supply is the quantity of a product that sellers are willing and able to offer at a particular price.
  7. The Law of Supply states a direct relationship between price and quantity supplied.
  8. The supply curve slopes upward from left to right.
  9. Market supply is the sum of all individual supplies in the market.
  10. Market equilibrium occurs where quantity demanded equals quantity supplied.
  11. At equilibrium, there is no excess demand or excess supply.
  12. A price ceiling is a maximum price set by the government to prevent overcharging.
  13. A price floor is a minimum price set by the government to protect producers or workers.
  14. Government intervention can cause shortages, surpluses, and reduced innovation if excessive.
  15. Public goods like roads and parks are provided by the government because private companies cannot profit from them.
  16. Changes in income, tastes, season, and future expectations shift the demand curve.
  17. Changes in technology, number of sellers, and input costs shift the supply curve.
  18. In the real world, markets are dynamic and constantly adjusting toward a new equilibrium.

MCQs — 10 Questions with Answers

Q1. Srivalli bought 2 kg mangoes when price was ₹100/kg. When price falls to ₹50/kg, she buys 3 kg. This change in quantity is due to:

  • A. Law of Demand ✓
  • B. Change in taste and preference
  • C. Change in consumer income
  • D. Availability of substitute goods

Answer: A — The direct inverse relationship between price falling and quantity demanded increasing is the Law of Demand; other factors remained constant.

Q2. When the price of smartphone cartridges remains the same but printer demand increases, cartridge demand also rises. This demonstrates the relationship between:

  • A. Substitute goods
  • B. Complementary goods ✓
  • C. Individual and market demand
  • D. Price and quantity demanded

Answer: B — Printers and cartridges are used together; increased printer demand leads to increased cartridge demand despite unchanged cartridge price.

Q3. Which of the following is NOT a reason for price changes in vegetables?

  • A. Seasonal availability affecting supply
  • B. Morning and evening demand fluctuations
  • C. The colour of the shopkeeper's uniform ✓
  • D. Perishability and storage costs

Answer: C — Shopkeeper's uniform colour has no economic connection to vegetable prices; only supply, demand, seasonality, and cost factors affect prices.

Q4. Market demand for mangoes at ₹100/kg is 12 kg (Srivalli 2 kg + Alex 4 kg + Israt 6 kg). If a fourth consumer Ravi joins with demand of 3 kg at same price, new market demand becomes:

  • A. 12 kg
  • B. 15 kg ✓
  • C. 9 kg
  • D. 18 kg

Answer: B — Market demand is the sum of all individual demands; 2+4+6+3 = 15 kg at ₹100/kg price level.

Q5. When coffee price increases but tea price remains constant, tea demand rises. What does this example illustrate?

  • A. Law of Demand for coffee
  • B. Coffee and tea are complementary goods
  • C. Coffee and tea are substitute goods ✓
  • D. Consumer income has increased

Answer: C — Substitute goods replace each other in consumption; price rise of one causes demand shift to the other, shown by coffee-to-tea switching.

Q6. Ramesh observes that the same flight seat costs ₹3,000 on Tuesday but ₹9,000 on Friday. Which concept best explains this price variation?

  • A. Law of Demand only
  • B. Change in demand due to season, trend, or weekday differences ✓
  • C. Substitute goods becoming more expensive
  • D. Consumer preference shift toward airplanes

Answer: B — Weekend travel demand is higher than weekday demand; higher demand on Friday justifies higher prices for same seat, not price alone.

Q7. The demand curve in Fig. 9.3(b) for market demand is flatter than in Fig. 9.2(b) for individual demand because:

  • A. Market prices are always lower
  • B. Aggregate demand from multiple consumers shows larger quantity response to same price change ✓
  • C. Individual consumers are more price-sensitive
  • D. Market supply is always greater than individual supply

Answer: B — When price falls from ₹150 to ₹50, Srivalli's demand increases 2 kg but market demand increases 12 kg, creating flatter curve response.

Q8. For something to be counted as demand in economics, it must include:

  • A. Only the desire to buy a product
  • B. Only the purchasing power to buy
  • C. Both willingness and ability to buy with money ✓
  • D. Only the availability of goods in market

Answer: C — Demand requires both desire (willingness) AND purchasing power (ability); desire alone without money is not economic demand.

Q9. Which scenario would cause the demand curve for automobiles to shift upward (not move along it)?

  • A. Car prices increase from ₹5 lakh to ₹7 lakh
  • B. Consumer incomes increase due to bonus season
  • C. Petrol prices rise (petrol is complementary good)
  • D. Both B and C ✓

Answer: D — Higher incomes increase car demand at each price (shifts curve); higher petrol prices reduce complementary good demand, both shifting entire demand curve.

Q10. Which of the following statements about market demand is correct?

  • A. Market demand is always three times individual demand
  • B. Market demand curve is steeper than individual demand curves
  • C. Market demand is the sum of all individual demands at each price level ✓
  • D. Market demand cannot exceed total population of the country

Answer: C — Market demand by definition aggregates (sums) all individual consumer demands at each price point; the multiple determines curve flatness, not steepness.

Flashcards

What is demand in economics?

The quantity of a product people are willing and able to buy at a particular price, depending on income, preferences, season, and purchasing power.

Define the Law of Demand with an example.

When price rises, quantity demanded falls; when price falls, quantity demanded rises—like mangoes: ₹150/kg → 1 kg bought, ₹50/kg → 3 kg bought.

What is the difference between individual demand and market demand?

Individual demand is one person's quantity demanded at different prices; market demand is the sum of all consumers' demands at each price level.

Give an example of substitute goods and explain their relationship.

Tea and coffee are substitutes; if coffee price rises, people switch to tea, increasing tea's demand even if tea's price stays the same.

What are complementary goods? Provide one example.

Goods used together for utility—smartphones and earphones; if smartphone demand rises, earphone demand also rises without price change.

How does consumer income affect demand?

Higher income increases purchasing power, enabling consumers to buy more goods or better quality products, raising quantity demanded.

What does a downward-sloping demand curve represent?

The inverse relationship between price and quantity demanded—as price decreases along the curve, quantity demanded increases.

Why is the market demand curve flatter than an individual demand curve?

Market demand aggregates many consumers, so the same price change creates a larger total quantity response than one person alone.

What must be present for something to count as demand?

Both the desire to buy AND the purchasing power to afford it; desire alone without ability to pay is not demand.

How do taste and preference changes affect demand?

When consumers' preferences shift toward a product, demand increases for that product even if its price and other factors remain unchanged.

Important Board Questions

Define demand in economics and explain why it is different from mere desire to buy a product. [2 marks]

Demand requires purchasing power (ability to pay) in addition to willingness; desire alone without money cannot be counted as economic demand.

Using the example of tea and coffee, explain how substitute goods affect each other's demand when prices change. [3 marks]

When coffee becomes expensive, people switch to cheaper tea; identify that price rise of one substitute → demand increase for other substitute, demonstrating inverse relationship between substitute good prices and demand.

The market demand for mangoes at ₹100/kg is 12 kg (from three consumers). Explain why the market demand curve is flatter than any individual consumer's demand curve, and what this reveals about market responsiveness to price changes. [5 marks]

Market demand aggregates many consumers so same price change produces much larger quantity change (e.g., price drop causes 12 kg market increase vs 2 kg individual increase); flatter slope indicates greater responsiveness, more buyers = larger total effect. Discuss real-world implication: markets respond more to prices than individuals do.

Assertion-Reason Questions for The Price Puzzle: What Drives the Market

Q1. Assertion (A):

Demand requires both the willingness and the ability to purchase a product.

Reason (R):

Without purchasing power, a consumer's desire to buy a product cannot be considered as demand in economic terms.

Answer: A — Both A and R are true, and R is the correct explanation of A — Both the assertion and reason are true. The reason correctly explains the assertion by clarifying that desire alone without purchasing power is not economic demand. The chapter specifically defines demand as willingness complemented by ability to buy.

Q2. Assertion (A):

The market demand curve for a product is flatter than an individual consumer's demand curve.

Reason (R):

Market demand is the horizontal summation of all individual demands, so it responds more significantly to price changes.

Answer: B — Both A and R are true, but R is NOT the correct explanation of A — The assertion is true (as shown in the mango example), but the reason is incorrectly stated. The market curve is flatter because it aggregates many consumers, creating a larger absolute quantity change. However, the reason states the opposite—that it 'responds more significantly,' which is misleading about why the curve is flatter.

Q3. Assertion (A):

Tea and coffee are substitute goods because they can replace each other in satisfying a consumer's desire for a hot beverage.

Reason (R):

When the price of coffee increases, consumers can switch to tea, thereby increasing the demand for tea.

Answer: A — Both A and R are true, and R is the correct explanation of A — Both the assertion and reason are true, and the reason correctly explains why tea and coffee are substitutes. The chapter provides this exact example to illustrate substitute goods and how price changes in one affect demand for the other.

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Case-Based Questions (CBQ) for The Price Puzzle: What Drives the Market

Case Study:

Raj operates a vegetable stall in a local market. On Monday morning, he stocks 100 kg of tomatoes and prices them at ₹60 per kg. By afternoon, unsold tomatoes are still available, so he reduces the price to ₹40 per kg. By evening, with even more unsold stock, he further reduces the price to ₹20 per kg and manages to sell most of his tomatoes. Raj observes that as he lowered prices throughout the day, more customers bought tomatoes, and his total sales revenue increased because the quantity sold increased significantly despite lower per-unit prices.

Q1. What economic principle does Raj's experience demonstrate?

  • A. The Law of Supply
  • B. The Law of Demand ✓
  • C. The concept of complementary goods
  • D. The principle of market equilibrium

Answer: B

Q2. Why did more customers buy tomatoes when the price decreased from ₹60 to ₹20 per kg?

  • A. Customers wanted to help Raj reduce his surplus
  • B. Lower prices increased the quantity demanded according to the Law of Demand ✓
  • C. Tomatoes became complementary goods at lower prices
  • D. Customer taste and preference changed during the day

Answer: B

Q3. Which factor is NOT directly responsible for the demand change observed in this scenario?

  • A. Price of tomatoes
  • B. Consumer income changes ✓
  • C. Quantity of tomatoes available
  • D. The inverse price-quantity relationship

Answer: B

Q4. If the price of potatoes (a substitute for tomatoes) had decreased to ₹15 per kg that same evening, how would this affect tomato demand?

  • A. Tomato demand would increase because they are substitutes
  • B. Tomato demand would decrease because consumers might switch to cheaper potatoes ✓
  • C. Tomato demand would remain unchanged since tomatoes are already cheap
  • D. Tomato demand would increase because of consumer preferences

Answer: B

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