Question

In a city, the price of NK Air Conditioners increased from ₹ 42,000 to ₹ 48,000 whereas the price of Carlo’s Air Conditioners remained the same at ₹ 45,000, which impacted the demand for both the products.

Explain with a reason whether it led to an expansion of/contraction of/increase in/decrease in demand for each of the following:

1. NK Air Conditioner
2. Carlo’s Air Conditioner

Answer 1

1. NK Air Conditioner: Contraction of demand (a decrease in quantity demanded). 
   
   • Reason: NK’s own price rose from ₹ 42,000 to ₹ 48,000, so buyers buy less of NK at the higher price (an upward movement along NK’s demand curve, i.e., contraction/fall in quantity demanded).
2. Carlo’s Air Conditioner: Increase in demand (rightward shift of Carlo’s demand curve).
   • Reason: Carlo’s price stayed at ₹ 45,000 while NK became relatively more expensive; since the two are substitutes, some consumers will switch from NK to Carlo’s, so demand for Carlo’s rises at the same price (a shift of the demand curve to the right).