When the price of butter was "low," consumers spent $5 billion annually on its consumption. When the price doubled cons...
When the price of butter was "low," consumers spent $5 billion annually on its consumption. When the price doubled consumer expenditures increased to $7 billion. Recently you read that this means that the demand curve for butter is upward sloping. Do you agree? Explain.
Homework Answers
Let price of butter be $ 1 then quantity purchased from $ 5 billion = $ 5 billion / $ 1 = 5 billion
when price doubles and become equal to $ 2 then quantity purchased = $ 7 billion/$2 = 3.5 billion
This shows that increase in price decreases quantity demanded.
Demand curve shows inverse relationship between price and quantity demanded rather rather than inverse relationship between price and consumer expenditure.
Demand curve for butter in this case will also be downward sloping.
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