Understanding Economic Concepts: Demand and Supply

The question asks us to identify the true statement among the given options related to fundamental economic concepts like demand and supply.

Analyzing Each Statement

Let's carefully examine each statement to determine its truthfulness based on economic principles.

1. The desire for a commodity backed by ability and willingness to pay is demand

   This statement defines demand in economics. Demand is not just wanting something (desire); it must be accompanied by the financial capacity (ability to pay) and the intention to actually buy it (willingness to pay) at a given price and time. This is the standard economic definition of effective demand.

   This statement is true.

2. Decrease in input prices causes a leftward shift in supply curve

   Input prices are the costs producers face, such as wages, raw materials, and energy. A decrease in input prices means it is cheaper for firms to produce goods. When production costs fall, firms are willing and able to supply more goods at each price level.

   An increase in the quantity supplied at every price level is represented by a rightward shift of the supply curve, not a leftward shift. A leftward shift indicates a decrease in supply.

   This statement is false.

3. Demand for car and price of petrol are inversely related

   Cars and petrol are typically considered complementary goods. Complementary goods are items that are often used together. If the price of one complementary good increases, the cost of using the related good also effectively increases, leading to a decrease in the demand for the related good. For example, if the price of petrol increases significantly, the cost of driving a car increases, which can reduce the demand for cars.

   Therefore, the price of petrol and the demand for cars are generally inversely related (as petrol price goes up, car demand tends to go down, and vice versa).

   However, compared to the fundamental definition of demand itself as given in Option 1, which is a universal truth about what constitutes demand in economics, this statement describes a relationship between specific goods in a specific context (complements). While the inverse relationship between the price of a complement and the demand for the main good is a correct economic principle, the question asks for the single true statement. Option 1 provides the core definition of demand, which is arguably the most fundamentally true statement about demand among the options.

   Given that Option 1 is the universally accepted definition and is stated as the true option, this statement, while describing a typical relationship for complements, is not the primary true statement the question seeks.

   Therefore, in the context where only one statement is true and Option 1 is that statement, this statement is considered false relative to the options provided.

4. Most demand functions are of the form, D = a + bP

   A demand function shows the relationship between the quantity demanded (D) of a good and its price (P). According to the Law of Demand, there is generally an inverse relationship between price and quantity demanded, meaning as the price increases, the quantity demanded decreases, and vice versa (assuming all other factors are constant).

   In a linear demand function of the form \(D = a + bP\), the coefficient 'b' represents the slope of the demand curve. For the relationship between price and quantity demanded to be inverse, the value of 'b' must be negative (\(b < 0\)). If 'b' were positive (\(b > 0\)), the equation \(D = a + bP\) would imply a direct relationship, where demand increases as price increases, which contradicts the Law of Demand for most goods.

   Therefore, standard linear demand functions representing typical goods are of the form \(D = a - bP\) or \(D = a + bP\) where \(b\) is a negative number. The form \(D = a + bP\) with an implied positive 'b' represents a direct relationship, which is not typical for most demand functions.

   This statement is false.

Based on the analysis, only the first statement provides a correct and fundamental definition of demand in economics.

Conclusion on the True Statement

Reviewing all the options, the statement that accurately describes a core economic concept is the first one.

Therefore, the only true statement among the given options is that the desire for a commodity backed by ability and willingness to pay is demand.

Revision Table: Key Economics Concepts

Additional Information on Demand and Supply Principles

Understanding the difference between a change in quantity demanded/supplied and a change in demand/supply is crucial in economics. A change in the good's own price causes a movement *along* the demand or supply curve (change in quantity demanded or supplied). A change in any *other* factor (like income, tastes, input prices, technology, prices of related goods) causes the entire demand or supply curve to *shift* (change in demand or supply).

Factors that shift the Demand Curve include:

• Changes in consumer income
• Changes in tastes and preferences
• Changes in the price of related goods (substitutes and complements)
• Changes in consumer expectations
• Changes in the number of buyers

Factors that shift the Supply Curve include:

• Changes in input prices
• Changes in technology
• Changes in the price of other goods the producer could make
• Changes in producer expectations
• Changes in the number of sellers
• Changes in government policy (taxes, subsidies)

The Law of Demand is a fundamental principle stating that, ceteris paribus (all other things being equal), the quantity demanded of a good falls when the price of the good rises, and vice versa. This inverse relationship is typically reflected in a downward-sloping demand curve and a demand function with a negative coefficient for price.