Macroeconomics
Macroeconomics
11th Edition
ISBN: 9781260506891
Author: Colander
Publisher: MCG
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Chapter 4, Problem 1QE
To determine

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

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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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