Suppose a statistical study finds that the demand for Brand X automobile tires i

Question

Suppose a statistical study finds that the demand for Brand X automobile tires is Q = 800-5P, where Q is the number of Brand X tires sold per year (in thousands of tires), and P is the price per tire. How confident would you be that this is an accurate equation for Brand X tire demand? O A. Very confident because statistical studies are very accurate O B. Not very confident because other factors affecting the sales of tires have been left out of the equation. O C. Very confident because the negative sign in front of price (P) means the demand curve has a negative slope, as it should. D. Not very confident because methods other than statistical studies are better at estimating demand equations.

Explanation / Answer

A demand schedule shows the relationship between price and quantity demanded of a good. According to the law of demand, when price of a good increases its quantity demanded decreases and vice versa. Thus this proves that there is an inverse relationship between price and quantity demanded and the demand curve is negatively sloped.

C) Very confident because the negative sign in front of price (P) means the demand curve has a negative slope as it should.

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