Explain the law of demand and the inverse relation between demand and price .

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Answer 1

Question

Chapter 4, Problem 1QE

To determine

Explain the law of demand and the inverse relation between demand and price.

Expert Solution & Answer

Explanation of Solution

According to the law of demand, demand decreases when the price increases and vice versa. This inverse relation between demand and price is due to the reason that when the price of a commodity decreases, it increases the purchasing power of people and they can buy more with a small price. Also, people have a tendency to switch their preference and substitute other goods for the need if the price of a good increases. These goods are known as normal goods. Sometimes the demand for goods increase with increasing price, and it is a violation of the law of demand, for example, Giffen goods.

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Suppose the marginal social cost of television sets is $100. This is constant and equal to the average cost of television sets. The annual demand for television sets is given by the following equation: Q = 200,000-500P, where Qis the quantity sold per year and P is the price of television sets. a) If television sets are sold in a perfectly competitive market, calculate the annual number sold. Under what circumstances will the market equilibrium be efficient? b) Show the losses in well-being each year that would result from a law limiting sales of television sets to 100,000 per year. Show the effect on the price, marginal social benefit, and marginal social cost of television sets. Show the net loss in well-being that will result from a complete ban on the sales of television sets. (show with graphs.)

Answer 2

Question

Chapter 4, Problem 1QE

To determine

Explain the law of demand and the inverse relation between demand and price.

Expert Solution & Answer

Explanation of Solution

According to the law of demand, demand decreases when the price increases and vice versa. This inverse relation between demand and price is due to the reason that when the price of a commodity decreases, it increases the purchasing power of people and they can buy more with a small price. Also, people have a tendency to switch their preference and substitute other goods for the need if the price of a good increases. These goods are known as normal goods. Sometimes the demand for goods increase with increasing price, and it is a violation of the law of demand, for example, Giffen goods.

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Answer 3

Question

Chapter 4, Problem 1QE

To determine

Explain the law of demand and the inverse relation between demand and price.

Expert Solution & Answer

Explanation of Solution

According to the law of demand, demand decreases when the price increases and vice versa. This inverse relation between demand and price is due to the reason that when the price of a commodity decreases, it increases the purchasing power of people and they can buy more with a small price. Also, people have a tendency to switch their preference and substitute other goods for the need if the price of a good increases. These goods are known as normal goods. Sometimes the demand for goods increase with increasing price, and it is a violation of the law of demand, for example, Giffen goods.

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Answer 4

Question

Chapter 4, Problem 1QE

To determine

Explain the law of demand and the inverse relation between demand and price.

Expert Solution & Answer

Explanation of Solution

According to the law of demand, demand decreases when the price increases and vice versa. This inverse relation between demand and price is due to the reason that when the price of a commodity decreases, it increases the purchasing power of people and they can buy more with a small price. Also, people have a tendency to switch their preference and substitute other goods for the need if the price of a good increases. These goods are known as normal goods. Sometimes the demand for goods increase with increasing price, and it is a violation of the law of demand, for example, Giffen goods.

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Answer 5

Chapter 4, Problem 1QE

To determine

Explain the law of demand and the inverse relation between demand and price.

Expert Solution & Answer

Explanation of Solution

According to the law of demand, demand decreases when the price increases and vice versa. This inverse relation between demand and price is due to the reason that when the price of a commodity decreases, it increases the purchasing power of people and they can buy more with a small price. Also, people have a tendency to switch their preference and substitute other goods for the need if the price of a good increases. These goods are known as normal goods. Sometimes the demand for goods increase with increasing price, and it is a violation of the law of demand, for example, Giffen goods.

Answer 6

Chapter 4, Problem 1QE

To determine

Explain the law of demand and the inverse relation between demand and price.

Expert Solution & Answer

Explanation of Solution

According to the law of demand, demand decreases when the price increases and vice versa. This inverse relation between demand and price is due to the reason that when the price of a commodity decreases, it increases the purchasing power of people and they can buy more with a small price. Also, people have a tendency to switch their preference and substitute other goods for the need if the price of a good increases. These goods are known as normal goods. Sometimes the demand for goods increase with increasing price, and it is a violation of the law of demand, for example, Giffen goods.

Answer 7

Chapter 4, Problem 1QE

To determine

Explain the law of demand and the inverse relation between demand and price.

Answer 8

Expert Solution & Answer

Explanation of Solution

According to the law of demand, demand decreases when the price increases and vice versa. This inverse relation between demand and price is due to the reason that when the price of a commodity decreases, it increases the purchasing power of people and they can buy more with a small price. Also, people have a tendency to switch their preference and substitute other goods for the need if the price of a good increases. These goods are known as normal goods. Sometimes the demand for goods increase with increasing price, and it is a violation of the law of demand, for example, Giffen goods.