Good X is an inferior good for a consumer, and good Y is a substitute for X. Her income falls and, at the same time, the price of Y rises. Other things remaining the same, what happens to her demand curve for X?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → It shifts rightward
Both changes raise the demand for X at every price, so its demand curve shifts rightward. For an inferior good, demand rises when income falls. A dearer substitute Y also turns buyers towards X.
Option (1) It cannot shift, as the price of X has not changed — Incorrect. A curve shifts when something other than its own price changes, such as income or the price of a related good.
Option (2) There is a movement down along it — Incorrect. A movement along the curve needs a change in the price of X itself.
Option (3) It shifts rightward — Correct. Both changes push demand for X up.
Option (4) It shifts leftward — Incorrect. A leftward shift would need a rise in income or a fall in the price of Y.
NCERT (2026-27): “2.4.3 Normal and Inferior Goods … As the income of the consumer increases, the demand for an inferior good falls, and as the income decreases, the demand for an inferior good rises. …” “2.4.5 Shifts in the Demand Curve … Given the consumer’s income and her preferences, if the price of a related good changes, the demand for a good at each level of its price changes, and hence, there is a shift in the demand curve. If there is an increase in the price of a substitute good, the demand curve shifts rightward. … It may be mentioned that shift in demand curve takes place when there is a change in some factor, other than the price of the commodity.” |