ECONOMICS
DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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All economic factors remain constant except price.
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All consumers lie about their purchasing habits.
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Inflation always causes product prices to rise.
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Availability of product is the most important variable.
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Detailed explanation-1: -The assumption behind a demand curve or a supply curve is that no relevant economic factors, other than the product’s price, are changing. Economists call this assumption ceteris paribus, a Latin phrase meaning “other things being equal”.
Detailed explanation-2: -Answer and Explanation: The income of consumers is held constant when a demand curve is constructed. Changes in income cause the demand curve to move from its position and, therefore, income needs to be assumed to be constant.
Detailed explanation-3: -Aside from price, other determinants of demand that affect the demand schedule or chart are: income, consumer tastes, expectations, price of related goods, and number of buyers.
Detailed explanation-4: -Assumptions to the law of Demand There will be no introduction of any substitutes. There will be no change in prices of substitute goods. There will be no anticipation of price change in future. There will be no change in the income level of the consumer. There will be no change in the taxation policy of the government.
Detailed explanation-5: -The ceteris paribus assumption will affect a demand curve because it will look at elasticity. If there’s an increase in the price of a good and all other factors stay constant, then the demand for that good will decrease. This is because most people won’t be able or willing to make purchases above their budget levels.