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Chapter 4: Problem 5

Yesterday the price of a good was \(\$ 10,\) and the quantity demanded was 100 units. Today the price of the good is \(\$ 12\) and the quantity demanded is 87 units. Did quantity demanded fall because the price increased, or did the price rise because quantity demanded fell?

Short Answer

Expert verified
Quantity demanded fell because the price increased.

Step by step solution

01

Understand the Situation

Two different situations are presented here: Yesterday, the price of a good was \(\$ 10\) and the quantity demanded was 100 units. Today, the price has risen to \(\$ 12\), and the quantity demanded decreased to 87 units.
02

Apply Economic Principle

In terms of Economics, people buy less of something if it's more expensive, given that all other factors remain equal. This is also known as the Demand Law.
03

Make Conclusion

Applying the Law of Demand to this scenario, it can be deduced that the quantity demanded fell because the price increased from \(\$10\) to \(\$12\), not the other way around.

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