Answer to Question #178321 in Microeconomics for Nabeel Hassan Khan

Question

The price of gasoline has increased during the past year explain why the law of demand applies to gasoline just as it does to all other goods and services?

Answer 1

The law of demand assumes that all other variables that affect demand are held constant. The law of demand applies to gasoline because there is both a substitution and an income effect that reinforce each other. When the price of gasoline rises, people substitute to different fuel options.