Chapter 14: Problem 498

What would be implied about the relationship between prices and quantity demanded, if a demand curve sloped upward and to the right? Might this situation normally be expected to occur?

Short Answer

Expert verified

An upward-sloping demand curve implies a positive relationship between prices and quantity demanded, where an increase in price leads to an increase in demand. This is contrary to the law of demand and is not normally expected to occur, except in rare cases involving Giffen or Veblen goods.

Step by step solution

Understanding the Demand Curve

A demand curve is a graphical representation of the relationship between the price of a good or service and the quantity demanded by consumers at different prices. A typical demand curve slopes downward and to the right, indicating that as the price decreases, the quantity demanded increases. This is known as the law of demand. Now, let's examine the case when the demand curve slopes upward and to the right.

Analyzing the Upward Sloping Demand Curve

If a demand curve slopes upward and to the right, it would imply that as the price of the good or service increases, the quantity demanded by consumers also increases. This is contrary to the law of demand.

Potentially Explaining the Upward Sloping Demand Curve

While an upward-sloping demand curve is unusual, there are a few situations in which this might occur, such as: 1. Giffen Goods: These are inferior goods for which the demand increases as the price increases, due to factors like income effect outweighing the substitution effect. Giffen goods are exceptionally rare, and examples include staple foods like rice and potatoes in certain situations. 2. Veblen Goods: These are luxury items for which the demand increases due to their exclusiveness and the associated status symbol. Examples include high-end designer clothing, jewelry, and luxury cars.

Evaluating the Likelihood of the Upward Sloping Demand Curve

In general, an upward-sloping demand curve is not expected to be a common occurrence. Most goods and services follow the law of demand, which states that as the price decreases, the quantity demanded increases. It is important to note that Giffen goods and Veblen goods are exceptions to the law of demand and are relatively rare in the market. In conclusion, an upward-sloping demand curve suggests that the relationship between prices and quantity demanded is positive, with an increase in price leading to an increase in demand. This situation is not typically expected to occur, except in the case of rare Giffen or Veblen goods.

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