Answer to Question #116224 in Microeconomics for enthrah

Question

during the boom period, the price of a used car decreases and the quantity demanded also decrease. This is violation to the law of demand. why does this happen ? explain graphicall.

Answer 1

Different goods may be inferior and much cheaper than their superior substitutes. The demand curve slopes upwards due to a positive relationship between the price and quantity demanded. The law of demand therefore does not hold since in most cases, the old cars are sold as consumers upgrade to better models. During the boom period, the price of used cars decrease as quantity demanded decrease due to substitutes.

If prices decrease from OP1 to OP2, the quantity demanded decreases from OQ3 to OQ4 due to a conspicuous perceived real belief that prices increase with increase in quality.