Match List-I with List-II.
| List-I | List-II | ||
|---|---|---|---|
| (A) | Substitution effect | (I) | Change in demand due to a change in purchasing power after a price change |
| (B) | Income effect | (II) | Negative relation between price and demand, other things being equal |
| (C) | Price elasticity of demand | (III) | The relatively cheaper good is bought in place of the dearer one |
| (D) | Law of demand | (IV) | Percentage change in demand divided by percentage change in price |
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → (A) - (III), (B) - (I), (C) - (IV), (D) - (II)
When a price changes, demand reacts through two effects. The law of demand and price elasticity describe the result.
| List-I | List-II | Reason |
|---|---|---|
| (A) Substitution effect | (III) The relatively cheaper good is bought in place of the dearer one | When bananas become cheaper, she substitutes bananas for mangoes. |
| (B) Income effect | (I) Change in demand due to a change in purchasing power after a price change | A lower price raises her purchasing power, which changes demand further. |
| (C) Price elasticity of demand | (IV) Percentage change in demand divided by percentage change in price | It measures how responsive demand is to price. |
| (D) Law of demand | (II) Negative relation between price and demand, other things being equal | Price up, demand down; price down, demand up. |
NCERT (2026-27): “2.4.2 Deriving a Demand Curve from Indifference Curves and Budget Constraints … When bananas become cheaper, the consumer maximises his utility by substituting bananas for mangoes in order to derive the same level of satisfaction of a price change, resulting in an increase in demand for bananas.” “Moreover, as price of bananas drops, consumer’s purchasing power increases, which further increases demand for bananas (and mangoes). This is the income effect of a price change, resulting in further increase in demand for bananas. Law of Demand: Law of Demand states that other things being equal, there is a negative relation between demand for a commodity and its price. …” “2.6 Elasticity of Demand … Price elasticity of demand for a good is defined as the percentage change in demand for the good divided by the percentage change in its price. …” |