At a price of $5, Sam buys 10 units of a product; when the price increases to $6, Sam buys 8 units. Martha says Sam's demand has decreased. Is Martha correct?
A. Yes, Martha is correct. Sam's demand has decreased.
B. No, Martha is incorrect. Sam's demand has increased.
C. No, Martha is incorrect. Sam's quantity demanded has decreased, and his demand has not changed.
D. No, Martha is incorrect. Sam's quantity demanded has increased, and his demand has increased.
Answer: C
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When the AE curve shifts upward because the price level falls, the corresponding effect on the aggregate demand curve is
A) a shift rightward of the aggregate demand curve. B) a movement upward along the aggregate demand curve. C) a shift leftward of the aggregate demand curve. D) a movement downward along the aggregate demand curve. E) nothing because aggregate demand does respond to changes in the price level.
Relative prices are an effective way of informing producers of
A) their marginal benefits of production. B) their marginal costs of production. C) both A and B. D) none of the above.