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Economy2021
Consider the following statements: Other things remaining unchanged, market demand for a good might increase if
  1. price of its substitute increases
  2. price of its complement increases
  3. the good is an inferior good and the income of the
  4. its price falls
Which of the above statements are correct?

Explanation

The correct option is indeed 1 and 4. Market demand for a good typically increases when the price of its substitute rises because consumers tend to switch to the relatively cheaper option. Additionally, when the price of the good itself falls, it becomes more attractive to consumers, leading to increased demand. Conversely, if the price of a complement increases or if a good is inferior and consumer income rises, demand would not necessarily increase for the good in question, as consumers might shift away from inferior goods or purchase fewer complementary goods. Thus, only options 1 and 4 align with the principles of demand elasticity and substitution in economic theory.

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