Saturday, October 22, 2011

Can you identify the error in the following statement about demand curves?The price of t-shirts keeps rising, but people keep buying more t-shirts....

If I'm understanding your question correctly, you need to explain how people could buy more t-shirts as the price rises (and you can't say that the the demand curve is upward sloping).


On that assumption, here goes.


What's happening here is not that the demand curve is upward sloping but rather that something is working to increase demand (that is, to move the whole demand curve to the right).  Some things that could do this:


T-shirts might be an inferior good and people are getting poorer.  Therefore they demand more t-shirts than before and the demand curve moves.


The price of other clothing options goes up and so people turn to t-shirts.  Demand goes up.


At any rate, just graph this for yourself.  Draw a demand curve and a supply curve.  Then draw a second demand curve to the right.  You'll see that the equilibrium price and quantity both go up even though the demand curve is still downward sloping.

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