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Relationship between the TR, MR and Demand Curves

What happens ...

Question

What happens when the price of good 1 increases but the income and price of good 2 remains the same?

A

Increase in purchase of good 2

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B

Increase in purchase of good 1

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C

Decrease in purchase of good 2

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D

Decrease in purchase of good 1

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Solution

The correct option is B Decrease in purchase of good 1
As the price of good 1 increases, with no change in quantity of good 2 purchased, the quantity of good 1 bought will reduce. Which means the line will contract towards the point of origin.

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