guide 6, p. 177, ex. 7 (Law of Demand)

[iv_stoyanov]

According to the book the correct answer is E).
The question is to demontrate the law of demand "the higher the price, the lower the quantity demanded".
C) states: "the recent increase in gas prices caused an increased demand for fuel-efficient cars". This answer choice illustrates that when gas increases, people look for fuel efficient cars and in turn consume less gas. I think that the decreased consumption of gas is a direct result from the higher demand of fuel efficient cars. I can not think up a situation in which buying a more fuel efficient car will not result in less consuption of gas. It is the same if electricity goes up, people will decrease their consumption, but before that they have to buy more efficient light bulbs, etc.
Answer E) illustartes the law of demand, but in the opposite way of what is stated in the premises - when price of Y goes up, then consumption of Y goes down. Answer E illustrates the opposite - when price of X goes down, consumption of X goes up.
Compared to C) this is also an indirect way to illustrate the point.

In conclusion: according to E) if the price of oranges goes down then consumption of oranges goes up. Can we conclude from that when price of oranges goes up, consumption will go down. Maybe...what if the demand curve doesn't have a regular slope...at some quantity the demand becomes inelastic and no matter how high the price is the quantity demanded stays the same...
Then how E) is beter than C)

I will be glad to get your feedback on that.

[tim]

E is indeed a reversal of the general principle, but if we were to graph higher price against lower demand we would see it goes the opposite direction as well. C takes us beyond the constraints of the demand law by describing demand for a substitute good. we cannot in fact conclude that more fuel-efficient cars means less demand for gas; in fact, studies have shown that gas consumption actually goes up when people buy fuel-efficient cars because they feel okay with buying more gas. i read this just last week; can't remember if it was in Spousonomics or NYT because i was reading both.. :)

[abhishek.shanker]

Hi, I have a query here.

In the argument, only statement made is " Higher the price , lower the quantity demanded".

In option E, the reverse is explained as an example.

Are we not assuming that arguement's opposite is always going to be true.

Can we make such assumptions on the question?

Thanks in advance.

[suneet.chandok]

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[jnelson0612]

Hi, I have a query here.

In the argument, only statement made is " Higher the price , lower the quantity demanded".

In option E, the reverse is explained as an example.

Are we not assuming that arguement's opposite is always going to be true.

Can we make such assumptions on the question?

Thanks in advance.

Abhishek, very good question. I think you can assume yes. As the price rises, demand declines. I think we can infer from that that as the price declines, demand rises. Also, you can see that none of the other answer choices are possible. Once again, process of elimination is your friend on verbal questions! :-)