In the book, the question is written as such: Are price and quantity demanded always inversely...

In the book, the question is written as such: Are price and quantity demanded always inversely related? Can you think of circumstances under which increasing the price of a good or service might cause the quantity demanded to increase? Can you think of circumstances under which decreasing the price might cause quantity demanded to decrease?

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Expert Solution

Yes, there are many such conditions when the demand for the goods will increase with the increase in the demand. For example, when the income of the people increase then they will demand more of the goods and that will increase the price and quantity both, similarly if the taste and preference of the goods change then the demand and the price of the goods both will increase. Another such incident is when the price of the substitute increase then the demand for the goods and its price both will increase together.

Giffen goods are another example where the demand increase when the price increase. that happens more with the luxury goods. example, if the price of a diamond increase the demand for the diamond will also increase.

Incident when the price and the demand both decrease are when the income decrease, taste and preference decrease, and the price of the substitute decrease. It will decrease the demand and price both. Another example is inferior goods. here, if the good get cheaper the people will consume less of it.

Rahul Sunny answered 1 year ago

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