What is the relationship between price and quantity demanded?
Explanation: In Economics, the relationship between price and quantity demanded is referred to as the law of demand. This law states that all else being equal, as the price of a good or service increases, the quantity demanded of the good or service decreases, and vice versa. The law of demand is one of the most basic and fundamental principles in economics.
There are a few key factors that determine the shape of the demand curve, including the prices of substitutes and complements, income levels, and preferences. The law of demand is represented graphically by the demand curve, which slopes downward from left to right.
The law of demand is not a hard and fast rule, and there are exceptions to it. For example, Giffen goods are goods that people purchase more of as the price increases. This is because the higher price acts as a signal of quality for Giffen goods. Second, Veblen goods are luxury items that people purchase more of as the price increases because the high price makes the goods more exclusive.
While the law of demand is a basic economic principle, it is important to remember that it is not an absolute rule. There are exceptions to the law of demand, and understanding these exceptions can be helpful in making economic decisions.