Question

There are train and bus services between New Delhi and Jaipur. Suppose, the train fare between the two cities comes down. How will this affect the demand curve for bus travel between the two cities?

Answer 1

If the train fare between New Delhi and Jaipur decreases, the demand for bus travel between these two cities will likely decrease, causing the demand curve for bus travel to shift leftward.

1. Substitute Goods: Train and bus services between New Delhi and Jaipur are substitute goods. This means that if the price of one decreases (in this case, the train fare), consumers may switch from the higher-priced option (bus travel) to the now cheaper alternative (train travel).
2. Leftward Shift in the Demand Curve: When the train fare decreases, many people who would have taken the bus may now prefer to travel by train instead due to the lower cost. This results in a decrease in the demand for bus travel. A decrease in demand for bus travel means that, at every price level, fewer people are willing to travel by bus, leading to a leftward shift in the demand curve for bus travel.