Managerial Economicsadvanced
A manager observes that buyers purchase less of a product after its price rises, while income and tastes have not changed. Explain how to interpret the observation using the law of demand and the demand curve.
Answer
The observation is consistent with the law of demand: other things equal, a higher own price is associated with lower quantity demanded. It represents movement along the demand curve, not a shift, because the stated change is the product's own price and other determinants are unchanged.
Explanation
### The concept
The law of demand predicts that quantity demanded generally falls when own price rises, with other conditions held constant. Since the scenario says income and tastes have not changed and identifies the product's own price as the change, the correct interpretation is movement along the curve. A shift would require another demand determinant to change.
### What a good answer covers
- Identifies the own-price increase.
- Applies the law of demand to the lower quantity demanded.
- Classifies the result as movement along the curve.
- Notes that other things are held equal.
### Terms
- **Quantity demanded**: The amount buyers plan to purchase at a particular price during a stated period.
### Remember
An own-price change changes the chosen point on demand, not the whole demand relationship.
Related Questions
- Which description best defines managerial economics?(basic)
- Under the SMARTTS framework, an objective with a stated deadline is _____.(basic)
- An increase in income always moves a consumer to a different point on the same demand curve.(intermediate)
- A price above equilibrium creates excess demand and tends to push price upward.(basic)
- What does a production function represent?(basic)
Want to practice more questions like this?
Join myBenkio free and practice past questions for your Nigerian university courses with AI explanations for every answer.
Start Practicing Free