Chapter 7, Problem 13AA

To determine

To evaluate: The changes to quantity demanded when the price of one good goes up and other prices stay the same.

Explanation of Solution

The demand curve shows the inverse relation between quantity demanded and price. The quantity demanded changes when the rate of the products increases and other prices remain the same can be explained with the help of the substitution effect. Assuming there are two products which are not exactly the same but essentially fulfill the same need. Their expense is roughly the same. If one price falls, individuals are more likely to purchase it instead of the other, now for higher-priced products. If one's price increases compared to the other, consumers will buy the lower-priced good now. This is called the substitution effect.

Economics Concept Introduction

Introduction:  The quantity demanded is the amount of goods which the buyer is ready to consume at a given price at a particular point of time. The quantity supplied refers to the flow of a good which the producers may sell at a price at a certain point in time.