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The Law of Demand and the Relation Between the Price and Quantity

The Law of Demand and the Relation Between the Price and Quantity

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Published by ClassOf1.com
Do consumers buy more of every good whose price has fallen? Explain.
Do consumers buy more of every good whose price has fallen? Explain.

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Categories:Types, School Work
Published by: ClassOf1.com on May 23, 2013
Copyright:Attribution Non-commercial

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05/24/2014

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Economics
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Sub: Economics Topic: Micro Economics
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The Law of Demand and the Relation Between the Price and Quantity
Question:
Do consumers buy more of every good whose price has fallen? Explain.
Solution:
According to LAW OF DEMAND consumers generally buy more of every normal goods as the price hasfallen. But there are some exceptions of law of demand. These are as follows:
Giffen goods
: Consumers generally buy more of every normal good whose price has fallen. Butthere are some exceptions. These exceptions are called the
giffen goods
. A Giffen good is onein which a change in price causes quantity to change in the same direction. An increase in pricecauses an increase in quantity and a decrease in price causes a decrease in quantity. In realitythe giffen goods are very rare and the demand curve has a positive slope. All the giffen goodsare inferior goods but all the inferior goods are not the giffen goods.
Articles of snob appeal
: Goods which serve '
status symbol
' do not follow the law of demand.These are goods of ' conspicuous consumption'. They give their possessor utility in the sense of their ownership. An increase in the price of BMW will not reduce the demand due to itsprestige value.
Emergency:
At times of war, famine etc. consumers have an abnormal behavior. If they expectshortage in goods they would buy and hoard goods even at higher prices. In depression theywill buy less at even low prices
Quality-price relationship
: some people assume that expensive goods are of a higher qualitythen the low priced goods. In this case more goods are demanded at higher price.

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