Law Of Demand

[thapliyalabhi]

I have a doubt in a question of CR guide 4th edition.

Law of Demand

The law of demand states that, if all other factors remain equal, the higher the price
of a good, the less people will consume that good. In other words, the higher the
price, the lower the quantity demanded. This principle is illustrated when

(A) Company A has a monopoly over the widget market so an increase in widget
prices has little effect on the quantity demanded
(B) a manufacturer of luxury cars noticed that its customer base is relatively unresponsive
to changes in price
(C) the recent increase in gas prices caused an increased demand for fuel-efficient
cars
(0) an increase in the number of computer retailers led to a decrease in the average
price of computers
(E) a reduction in the price of oranges from $2 per pound to $1 per pound results
in 75 pounds of oranges being sold as opposed to 50 pounds




In the explanation, it is mentioned "The passage describes the law of demand, which states that the higher the price, the lower the quantity demanded. Alternatively, .the law could be restated as indicating that the lower the price, the greater the quantity demanded."
While, in reality this would be true, but since it is not mentioned explicitly in the passage, should we assume this to be true as well.

[Willy]

Yes, we can make this assumption safely as it is 'correlation type question'.

Suppose you have 5 ways to go from Delhi to Budapest and 4 ways are closed (pay attention to -- if all other factors remain equal -- in paragraph) you are left with only 1 way to go and that is the only way you can come back. So, it is safe to assume.

[shubhamsinghster]

We need to illustrate "the higher the price, the lower the quantity demanded"

Option (C) does not illustrate this. It illustrates "the higher the price, the higher the quantity demanded of another product". The other product could be a substitute or it is possible that it is just an additional product meeting the same needs i.e. it is possible that number of people using cars and number of people using public transportation, both have increased. Hence option (C) is not correct.

As for (E), you have been given that you can sell 50 pounds of oranges at the rate of $2 and 75 pounds of oranges at the rate of $1. You can read it in any way you like - When price increases, quantity decreases OR when price decreases, quantity increases.
Anyway, no other option comes even close.

[jlucero]

Interesting note about this question- in our updated 5th edition, our curriculum writers agree with you here. C is a tempting trap answer and you can see the connection it has to the law of demand here, albeit it through a path not discussed in the argument. E is still the correct answer, but the 5th edition changed option C to a much less temping option:

C) a city experiences an increase in both gasoline prices and the number of people taking public transportation

My takeaway- get a 760 on your GMAT and then come help us write our curriculum :)