A typical demand curve will tell Palo that the higher the price of the cashmere sweaters his company makes,

Question

BlackTom AI · Accepted Answer

The question asks about what a typical demand curve implies regarding consumer purchases as price changes.
Option 1: 'the lower the output of producers.' This confuses demand with supply. The demand curve shows how quantity demanded responds to price, not how much producers output. Output is determined by the supply side and market equilibrium, not directly by the demand curve alone.
Option 2: 'the greater the production costs.' Production costs are a matter of the supply side and technology, not a direct implication of the demand curve. The demand curve reflects consumer behavior at given prices, independent of the cost structure faced by producers.
Option 3: 'the lower the quantity consumers will buy.' This aligns with the standard downward-sloping demand curve: as price rises, the quantity demanded typically falls, holding other factors constant. This describes the core relationship depicted by the demand curve.
Option 4: 'the greater the income effect.' The income effect refers to how a price change affects real purchasing power and thereby quantity demanded, but the demand curve itself does not quantify the magnitude of the income effect; it simply shows the general inverse relationship between price and quantity demanded. Specific inference about the income effect would require additional analysis beyond the curve alone.
Option 5: 'the lower the cross-price elasticity.' Cross-price elasticity measures how the quantity demanded of one good responds to a price change in another good. While related concepts can influence demand, the existence or sign of cross-price elasticity is not a direct consequence stated by the basic demand curve for a single good.
Thus, among the options, the statement that best captures the standard reading of a typical demand curve is that higher prices lead to lower quantity demanded, i.e., option 3.}

A typical demand curve will tell Palo that the higher the price of the cashmere sweaters his company makes,

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