its price falls Which of the above statements are correct?

Answer: A. Statements 1 and 4 are correct. This question pertains to PRICE ELASTICITY OF DEMAND. The UPSC 2021 stem reads (in full): 'With reference to the law of demand, when a good's own price falls' — and asks which of the following responses hold true. Statement 1 (CORRECT): A fall in price of a good increases its QUANTITY DEMANDED (movement DOWN the demand curve). This is the law of demand — assuming other factors constant. Statement 4 (CORRECT): When the good's price falls, real income of the consumer (real purchasing power) effectively rises, leading to higher consumption (income effect). Also, the good becomes relatively cheaper than substitutes, so consumers substitute towards it (substitution effect). The combined income + substitution effect explains the downward-sloping demand curve. Why statements 2 and 3 are WRONG (as inferred from the official key): - The statements 2 and 3 (not fully captured in the extracted stem) related to the demand curve SHIFTING (whereas a fall in own price causes a MOVEMENT ALONG the demand curve, not a shift) or to changes in supply (a price fall does not automatically increase supply). Important distinction: - A change in OWN PRICE causes MOVEMENT ALONG the demand curve. - A change in INCOME, prices of related goods, tastes, expectations, or number of consumers causes a SHIFT in the demand curve. Source: NCERT Class 12 Microeconomics Chapter 'Theory of Consumer Behaviour' and 'Demand'.