Answer to Question #143039 in Macroeconomics for allyssa

Question

In the market for used cars, the average price is currently $85,000 per car, and there is a demand of 450 customers at that price. As the price falls to the equilibrium price of $60,000, demand rises to 700 customers. The price continued to fall, and at a price of $52,000, the demand fell to 600 customers. Kindly explain why the demand follows the law of demand from the price change of $85,000 to $60,000 and why it doesn't follow the law of demand for the price change of $60,000 to $52,000, making sure to make mention to the quality of the cars.

Answer 1

Between $85,000-60,000 (right side of the supply-demand curve) the law of demand is followed as there is no effect by externalities. However, the price falling below equilibrium level is an indication of increased supply or reduced quality; these factors would lead to a reduced desire of purchase thus lower demand.