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Consider the following statements regarding laws of demand and supply.
- The law of demand asserts that as prices rise, the quantity demanded for an economic good decreases.
- Producers are willing to supply more at higher prices because the increased selling price compensates for the elevated opportunity cost associated with each additional unit sold.
Which of the above statements is/are incorrect?
- a)1 only
- b)2 only
- c)Both 1 and 2
- d)Neither 1 nor 2
Correct answer is option 'D'. Can you explain this answer?
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Verified Answer
Consider the following statements regarding laws of demand and supply....
- The law of demand states that, if all other factors remain equal, the higher the price of a good, the less people will demand that good. In other words, the higher the price, the lower the quantity demanded.
- The amount of a good that buyers purchase at a higher price is less because as the price of a good goes up, so does the opportunity cost of buying that good.
- The law of supply says that at higher prices, sellers will supply more of an economic good. From the seller’s perspective, the opportunity cost of each additional unit that they sell tends to be higher and higher. Producers supply more at a higher price because the higher selling price justifies the higher opportunity cost of each additional unit sold.
Most Upvoted Answer
Consider the following statements regarding laws of demand and supply....
Incorrect Statements Regarding Laws of Demand and Supply
The given statements are incorrect because they do not accurately describe the laws of demand and supply.
Law of Demand
- The law of demand states that as prices rise, the quantity demanded for an economic good decreases. This means that there is an inverse relationship between price and quantity demanded. When the price of a good increases, consumers tend to buy less of it, ceteris paribus.
Law of Supply
- On the other hand, the law of supply asserts that producers are willing to supply more at higher prices because the increased selling price compensates for the elevated opportunity cost associated with each additional unit sold. This means that there is a direct relationship between price and quantity supplied. As the price of a good increases, producers are incentivized to supply more of it to the market.
Correct Interpretation
- Therefore, the correct interpretation of the laws of demand and supply is that higher prices lead to a decrease in quantity demanded (law of demand) and an increase in quantity supplied (law of supply). This dynamic interaction between consumers and producers helps determine the equilibrium price and quantity in a market.
In conclusion, both statements provided in the question are incorrect as they do not accurately represent the fundamental principles of the laws of demand and supply.
The given statements are incorrect because they do not accurately describe the laws of demand and supply.
Law of Demand
- The law of demand states that as prices rise, the quantity demanded for an economic good decreases. This means that there is an inverse relationship between price and quantity demanded. When the price of a good increases, consumers tend to buy less of it, ceteris paribus.
Law of Supply
- On the other hand, the law of supply asserts that producers are willing to supply more at higher prices because the increased selling price compensates for the elevated opportunity cost associated with each additional unit sold. This means that there is a direct relationship between price and quantity supplied. As the price of a good increases, producers are incentivized to supply more of it to the market.
Correct Interpretation
- Therefore, the correct interpretation of the laws of demand and supply is that higher prices lead to a decrease in quantity demanded (law of demand) and an increase in quantity supplied (law of supply). This dynamic interaction between consumers and producers helps determine the equilibrium price and quantity in a market.
In conclusion, both statements provided in the question are incorrect as they do not accurately represent the fundamental principles of the laws of demand and supply.
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Consider the following statements regarding laws of demand and supply. The law of demand asserts that as prices rise, the quantity demanded for an economic good decreases. Producers are willing to supply more at higher prices because the increased selling price compensates for the elevated opportunity cost associated with each additional unit sold.Which of the above statements is/are incorrect?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'D'. Can you explain this answer?
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