imhimanshu wrote:
The law of demand states that, if all other factors remain equal, the higher the price of a good, the less people will consume that good. In other words, the higher the price, the lower the quantity demanded. This principle is illustrated when _____________
oh man, I saw that it's a
MGMAT 700-lvl question, and thought that it must have some kind of trick, yet, the answer is pretty obvious if you have at least some basic economics knowledge.
a) Company A has a monopoly over the widget market so an increase in widget price has little effect on the quantity demanded.
in monopoly - the law of demand does not apply. moreover, it does not support what it was said in the argument.
b) a manufacturer of luxury cars noticed that its customer base is relatively unresponsive to changes in price.
this is true for veblen goods. for these type of questions, the regular law of demand does not apply. B is out.
c) a city experiences an increase in both gasoline prices and the number of people taking public transportation.
it might be the case that the higher the price for gasoline, the more people take public transport. Nevertheless, this answer choice requires some additional assumptions, and a correct answer would not have such kind of issue. It might be the case that the 2 events are unrelated, or that an increase of the number of people who take public transportation leads to an increase of gas consumption, since more buses are needed to satisfy the demand for the ridership. C is incorrect thus.
d) an increase in the number of computer retailers led to decrease in the average price of computers
this is a reverse cause-effect relationship. Moreover, it might be true that the price of computers plummeted because of the increased competition.
e) a reduction in the price of oranges from $2 per pound to $1 per pound results in 75 pounds of oranges being sold as opposed to 50 pounds.
clearly says that the lower the price, the more is consumed. I attached a "well drawn" picture showing the relationship of Q and P and how Demand and Supply changes depending on the price.
Attachments
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