Consider the following statements for a market with a fixed number of firms:
(A) After a rightward shift of the demand curve, there is excess demand at the old equilibrium price.
(B) After a leftward shift of the demand curve, some firms reduce their price so that they can sell their desired quantity.
(C) A rightward shift of the demand curve lowers the equilibrium price.
(D) A rise in consumers’ income shifts the demand curve for an inferior good to the left.
(E) An increase in the number of firms shifts the demand curve to the right.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → (A), (B) and (D) only
With a fixed number of firms, a demand shift moves the price and the quantity in the same direction. The number of firms affects only the supply curve.
(A) After a rightward shift of the demand curve, there is excess demand at the old equilibrium price. — Correct. At any price more is now demanded, so at the old price there is excess demand.
(B) After a leftward shift of the demand curve, some firms reduce their price so that they can sell their desired quantity. — Correct. There is excess supply at the old price, so some firms reduce their price to sell what they want.
(C) A rightward shift of the demand curve lowers the equilibrium price. — Incorrect. Excess demand pushes the price up, so the new equilibrium price is higher.
(D) A rise in consumers’ income shifts the demand curve for an inferior good to the left. — Correct. Consumers spend less on an inferior good when income rises, so its demand curve shifts left.
(E) An increase in the number of firms shifts the demand curve to the right. — Incorrect. More firms shift the supply curve to the right; the demand curve does not move.
NCERT (2026-27): “Demand Shift … Now suppose the market demand curve shifts rightward to DD2 with supply curve remaining unchanged at SS0, as shown in panel (a). This shift indicates that at any price the quantity demanded is more than before. Therefore, at price p0 now there is excess demand in the market equal to q0q''0 . In response to this excess demand some individuals will be willing to pay higher price and the price would tend to rise. The new equilibrium is attained at G where the equilibrium quantity q2 is greater than q0 and the equilibrium price p2 is greater than p0.” “Demand Shift … Similarly if the demand curve shifts leftward to DD1, as shown in panel (b), at any price the quantity demanded will be less than what it was before the shift. Therefore, at the initial equilibrium price p0 now there will be excess supply in the market equal to q'0 q0 in response to which some firms will reduce the price of their commodity so that they can sell their desired quantity. The new equilibrium is attained at the point F at which the demand curve DD1 and the supply curve SS0 intersect and the resulting equilibrium price p1 is less than p0 and quantity q1 is less than q0. Notice that the direction of change in equilibrium price and quantity is same whenever there is a shift in demand curve.” “Demand Shift … Suppose due to a hike in the salaries of the consumers, their incomes increase. … With an increase in income, consumers are able to spend more money on some goods. But recall from Chapter 2 that the consumers will spend less on an inferior good with increase in income whereas for a normal good, with prices of all commodities and tastes and preferences of the consumers held constant, we would expect the demand for the good to increase at each price as a result of which the market demand curve will shift rightward.” “Supply Shift … Let us discuss the impact of an increase in the number of firms. Since at each price now more firms will supply the commodity, the supply curve shifts to the right but it does not have any effect on the demand curve. …” |