When asked to write the definition of the \"Law of Demand\" on an exam, Chris wr

Question

When asked to write the definition of the "Law of Demand" on an exam, Chris wrote "When the price of a good increases, consumers will decrease the amount that they purchase." Chris' professor deducted one point for this response. The professor most likely deducted one point because Chris forgot to include: the phrase "holding everything else constant." that producers will stop producing the good if the price is too high. the price of inputs into the production process. that wealthy consumers can buy as much as they want at any price.

Explanation / Answer

Correct choice - a. the phrase "holding everything else constant"

The law of demand assumes that all other factors such as consumers income, price of other goods etc are held constant. Only then the law of demand holds true, i.e with price increase of a good, the demand for that good decreases.

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